What is a Stockbroker?

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What is a stockbroker? Requirements and duties of brokers and how they help manage your investments.

What is a Stockbroker?

A stockbroker is a professional licensed to buy and sell financial instruments on a stock exchange on behalf of other people. Several characteristics apply to this definition:

Educational guidelines include a degree in finance or business administration. Brokers need a good understanding of business and financial transactions, especially principles of valuation, debt, and accounting. This helps them evaluate investment opportunities.

Employment guidelines usually involve working with a brokerage firm. While it's possible for a stockbroker to work as an individual, it's much more common for several brokers to work together to pool assets and experience and reduce risk.

Licensing requirements include the "Registered Representative" designation in the US. Requirements and regulations vary by country. In the US, brokers obtain the "Registered Representative" designation by passing the General Securities Representative Exam (or Series 7 exam).

Especially in the US, someone can only be called a "stockbroker" if they are registered to sell stock—measured by passing the Series 7 exam.

Beyond the standard registration, brokers can be licensed for further duties. To oversee multiple brokers, to ensure regulatory compliance, and to approve various types of advertising and marketing materials, a registered principle must obtain an additional license. Similarly, a special type of registered principle is licensed to oversee options trading and exposure.

What Does a Stock Broker Do?

A broker mediates security transactions, helping you sell stocks, bonds, derivatives, and other financial instruments.

A broker sells investment advice, intended to help you manage your investment portfolio.

A broker sometimes invests on your behalf, making trades within your portfolio.

This, of course, leads to commission charges. Sometimes it's well worth it; see how stockbrokers make money for more information about which fees and services are worth paying.

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