What Stock Brokers Should Do for You
If you have ever wanted to make a stock trade, you have inevitably discovered that you needed to have a stock broker to help you make the magic mystery sauce trade happen. But what exactly do stock brokers (BD’s for short) do for you? In this post, you will discover exactly how they help you in initiating and completing stock trades.
A Brief History
When the stock market was first coming into existence (you know, back in the dark ages when there was no Internet), stock brokers actually played an extremely prominent role in the day-to-day functioning of the markets. Since no Internet platforms existed, a person literally had to travel to New York City, New York if they wanted to buy US stocks.
Once there, they would meet up with a reputable stock broker and discuss the kind of trade that they were looking to make (i.e. what company, how many shares, what price?). The stock broker was licensed by the US government to initiate and complete trades on the behalf of that individual, so he could duly receive and transmit this information to the proper party.
After their meeting, the stock broker would actually stand on the floor of the New York Stock Exchange and attempt to complete the trade as requested for his client. Upon completion of the trade, the stock broker would charge a hefty sum for helping the client make his trade.
What do Stock Brokers do Now?
Now, there isn’t any more need for shouting on the stock exchange floor since the Internet is alive and well. At the same time, the traditional role of the stock broker has shifted paradigms greatly. It used to be that a stock broker had to be a great salesman and good at negotiating prices.
Now, a “stock broker” is basically an electronic system that facilitates the buying and selling of stock shares between individuals. We know these systems popularly by the names “Tradeking, TD Ameritrade, Schwab”, and others. Of course, many broker dealers do offer services beyond facilitating trades (like financial advising and robo-advising), but creating the systems that allow a person to buy and sell their stocks at market price produces a large return for these BD’s each year, since the BD’s take a commission price on every trade.
Naturally, having stock brokers housed on the Internet in the modern day has dramatically increased their value to the typical investor. For one, the commissions that most brokerages take on trades made on the behalf of an investor continue to decrease as more and more competition between broker-dealers floods the market.
Secondly, the availability of broker-dealers online has widely increased the investment volume of the world population. In the past, a person had to have a very personal relationship–truly built on trust–with their BD in order to make a trade. Now, almost anyone anywhere with a bank account can begin to invest in the stock market. In turn, this has exponentially increased the amount of capital available to companies, which increases their ability to invest in innovation and infrastructure.
So, what does your broker-dealer do for you? Short answer: facilitate trades. Long answer: they put in an incredible amount of work to get you the easiest access to stock at the price closest to that price that actually exists in a true, free-market stock market. In other words, they do everything for you…and all for a few dollars per trade.