Broker: Definition, Types, Regulation, and Examples
What Is a Broker?
A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. Because securities exchanges only accept orders from individuals or firms who are members of that exchange, individual traders and investors need the services of exchange members.

Brokers provide that service and are compensated in various ways, either through commissions, fees, or through being paid by the exchange itself. Investopedia regularly reviews all of the top brokers and maintains a list of the best online brokers and trading platforms to help investors make the decision of what broker is best for them.

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KEY TAKEAWAYS

A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange.
A broker can also refer to the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
Discount brokers execute trades on behalf of a client, but typically don’t provide investment advice.
Full-service brokers provide execution services as well as tailored investment advice and solutions.
Brokers register with the Financial Industry Regulatory Authority (FINRA), while investment advisers register through the SEC as registered investment advisors (RIAs).

Compare the Best Online Brokers

Company
Category 
 Investopedia Rating
Account Minimum
Basic Fee

 Fidelity Investments
 Best Overall and Best for Low Costs
 4.8
$0
 $0 for stock/ETF trades, $0 plus $0.65/contract for options trade

 TD Ameritrade
 Best for Beginners and Best Mobile App
 4.5
$0
 $0 for stock/ETF trades, $0 plus $0.65/contract for options trade

 Tastyworks
 Best for Options
 3.8
$0
 $0 stock/ETF trades, $1.00 to open options trades and $0 to close

 Interactive Brokers
 Best for Advanced Traders and Best for International Trading
 4.6
$0
$0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value

Charles Schwab
Best for ETFs
4.7
$0
$0 for stock/ETF trades, $0 plus $0.65/contract for options trade

Understanding Brokers
As well as executing client orders, brokers may provide investors with research, investment plans, and market intelligence. They may also cross-sell other financial products and services their brokerage firm offers, such as access to a private client offering that provides tailored solutions to high net worth clients. In the past, only the wealthy could afford a broker and access the stock market. Online brokering triggered an explosion of discount brokers, which allow investors to trade at a lower cost, but without personalized advice.

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Discount vs. Full-Service Brokers
Discount brokers can execute many types of trades on behalf of a client, for which they charge a reduced commission in the range of $5 to $15 per trade. Their low fee structure is based on volume and lower costs. They don’t offer investment advice and brokers usually receive a salary rather than a commission. Most discount brokers offer an online trading platform which attracts a growing number of self-directed investors. Such services usually charge $0 in commissions.
Full-service brokers offer a variety of services, including market research, investment advice, and retirement planning, on top of a full range of investment products. For that, investors can expect to pay higher commissions for their trades. Brokers receive compensation from the brokerage firm based on their trading volume as well as for the sale of investment products. An increasing number of brokers offer fee-based investment products, such as managed investment accounts.

Real Estate Brokers
In the real estate industry, a broker is a licensed real estate professional who typically represents the seller of a property. A broker’s duties when working for a seller may include:

Determining the market values of properties.
Listing and advertising the property for sale.
Showing the property to prospective buyers.
Advising clients about offers, provisions, and related matters.
Submitting all offers to the seller for consideration.

It is not uncommon to have a real estate broker work for a buyer, in which case, the broker is responsible for:

Locating all properties in the buyer’s desired area sorted by price range and criteria.
Preparing an initial offer and purchase agreement for a buyer who decides to make an offer for a property.
Negotiating with the seller on behalf of the buyer.
Managing inspections on the property and negotiating repairs.
Assisting the buyer through to closing and taking possession of the property.

Broker Regulation
Brokers register with the Financial Industry Regulatory Authority (FINRA), the broker-dealers’ self-regulatory body. In serving their clients, brokers are held to a standard of conduct based on the “suitability rule,” which requires there be reasonable grounds for recommending a specific product or investment. The second part of the rule, commonly referred to as “know your customer,” or KYC, addresses the steps a broker must use to identify their client and their savings goals, which helps them establish the reasonable grounds for the recommendation.

The broker must make a reasonable effort to obtain information on the customer’s financial status, tax status, investment objectives, and other information used in making a recommendation.

This standard of conduct differs significantly from the standard applied to financial advisors registered with the Securities and Exchange Commission (SEC) as registered investment advisors (RIAs). Under the Investment Advisers Act of 1940, RIAs are held to a strict fiduciary standard to always act in the best interest of the client, while providing full disclosure of their fees.

Real estate brokers in the United States are licensed by each state, not by the federal government. Each state has its own laws defining the types of relationships that can exist between clients and brokers, and the duties of brokers to clients and members of the public.

Examples of Brokers
Full-service brokers tend to use their role as a brokerage as an ancillary service available to high-net-worth clients along with many other services such as retirement planning or asset management. Examples of a full-service broker might include offerings from a company such as Morgan Stanley, Goldman Sachs, or even Bank of America Merrill Lynch.
The larger brokerage firms tend to carry an inventory of shares available to their customers for sale. They do this to help reduce costs from exchange fees, but also because it allows them to offer rapid access to popularly held stocks. Other full-service broker firms are actually agency brokers. This means that unlike many larger brokers they carry no inventory of shares, but act as agents for their clients to get the best trade executions.

An example of this would be if a high-net-worth investor named Amy wanted to place a large buy order for Tesla Inc. (TSLA) stock. Amy would call or message her broker, telling them to execute the buy order of, say, 10,000 shares. This is an order in the millions of dollars so Amy feels more comfortable having a broker execute the trade directly.
The broker receives the order and if the brokerage has those shares available, they will most likely fill Amy’s order immediately. If they don’t they could buy those shares on the exchanges or from other brokerages. They may not place the order in the amount of 10,000, grabbing instead 500 to 1,000 shares at a time to deliver to Amy after the funds settle.

What Exactly Does a Broker Do?

A broker facilitates trades between individuals/companies and the exchanges where the broker is licensed. Depending on the nature of the trade and marketplace, a broker can either be a human being who is processing the trade themselves or a computer program that is only monitored by a human. Typically, stock trades are computerized whereas something like real estate requires a more personal touch.

Do Brokers Make Money?

Yes, brokers make money. The salary a broker receives depends on a lot of factors, mainly the worth of the clients they are servicing or if they are brokers for businesses such as commercial real estate owners and sellers. A typical stockbroker may make a salary and a commission on trades managed and has an average salary of around $74,000.2

What Is a Broker and Why Do I Need One?

A broker is an intermediary between those who want to make trades and invest and the exchange in which those trades are processed. You need a broker because stock exchanges require that those who execute trades on the exchange be licensed. Another reason is a broker ensures a smooth trading experience between an investor and an exchange and, as is the case with discount brokers, usually won’t charge a commission for normal trades.

 
Do Stock Brokers Make Good Money?

Stockbrokers make a solid income. With the average salary in the United States hovering around $58,000, the average salary of a stockbroker at around $73,000 is considerably higher.3 However, it is still a salary that might deflate those who dream of multi-million dollar

 
How Do You Become a Broker?

Becoming a broker depends on a few things. First, having a background or degree in finance or economics will be extremely helpful. This may get you noticed but in order to actually be hired and perform as a broker, you will need to be appropriately licensed.