What Is a Brokerage Firm?
A brokerage buys and sells on behalf of clients' stocks, bonds, options, and other financial products. Many brokerages hire individual brokers to pool resources, offering the best service. Also, many financial services firms have brokerage houses as part of their broader services.
What Does a Brokerage Firm Do?
A brokerage is between securities buyers and sellers and other financial instruments. As a customer, you typically tell the broker which stocks and when to trade. However, some brokerage firms go above and beyond the usual intermediary position by advising on which stocks to buy and sell, the risks involved, and how such trades will impact your investment portfolio.
Brokerage firms usually have several brokers to help clients. You have very limited stock buying options without a broker, so you'll need a broker to help procure investment. A broker is an individual trained and licensed to help buy and sell stocks, bonds, and mutual funds. Brokers work closely with clients to select investments for their needs.
How Does a Brokerage Firm Work?
A brokerage contacts stock exchanges to execute your desired trades. In exchange, brokerage fees are charged. Usually, it's per-trade, but some brokerage firms charge annual account maintenance fees.
Usually, the process involves opening a brokerage account with standard information such as name, contact information, and bank information. Most brokerages allow you to open an account online, although you may visit a branch office to open an account personally. You can decide which account type to open. Non-retirement accounts, retirement accounts, college savings accounts, and savings accounts may be chosen.
The next step is to fund a transfer, check, or transfer of assets from another brokerage. Then choose the type of investment such as stocks, bonds, mutual funds, and exchange-traded funds.
What Is a Full-Service Brokerage Firm?
Full-service brokerages are not just basics. They not only do business for you but also provide a range of other services, including tax planning, research, investment advice, and planning for estate and retirement. Typically, a full-service brokerage has a dedicated broker who can meet you personally and provide personalized advice based on specific circumstances.
The other services it offers to compensate for the fees it charges can add up significantly over time. So even the best full-service brokerage may not create enough value. However, a good full-service brokerage can save you money over time. This usually helps you lower taxes or make the right investments.
What Is a Discount Brokerage Firm?
A discount brokerage is a pared-down, bare-bones variant of a full-service brokerage that focuses primarily on trading. This may mean you don't get a dedicated professional team to help you understand how you can grow your wealth. However, you often pay a lower brokerage fee for this service—usually a flat per-trade fee.
Most online brokerages are of the discount variety, allowing you to make investments at the lowest possible cost. You can save considerable amounts on fees by opting for low-cost discount brokerage and investing in a DIY approach, but you will lose advice and planning from a professional team.
Conclusion
Choosing the right brokerage firm depends partly on your needs and how much wealth you have amassed. Customers who have built up considerable wealth over time may prefer a full-service brokerage approach that provides professional advisors to help you make the right investment decisions and develop a good retirement plan.