Stockbroker: Definition, Roles & Types Explained| Espresso

What is a Stockbroker and Its Types

There are eight stock exchanges in India, out of which the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two prominent ones. If you wish to invest in the share market, you must do it via these stock exchanges. However, as per the Securities and Exchange Board of India (SEBI) guidelines, a common man cannot trade directly with the stock exchanges.

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Instead, they need to do it through one of the authorised stockbrokers. These stockbrokers act as middlemen between the investors and stock exchanges and facilitate buying and selling of the shares. This article defines stockbrokers, their role in the stock market, and the types of stockbrokers in India. Let’s get started.

Who is a Stockbroker?

As mentioned, a stockbroker acts as a middleman between an investor and the stock exchanges. They are financial professionals who execute trade orders in the stock market on behalf of their clients or investors. A stockbroker is also known as a financial market representative or an investment advisor.

The primary role of a stockbroker is to place buy and sell orders in the share market on behalf of the investors. They also provide expert advice to their clients regarding market dynamics and investment decisions. A stockbroker can work as an individual or as a part of a brokerage firm.

What Are the Services Offered by a Stockbroker?

Stockbrokers charge a nominal fee from their clients in lieu of their services. Apart from facilitating buying and selling of shares in the share market, stockbrokers offer a range of services to their clients, such as:

  • Investment advisory services

Stockbrokers possess knowledge and expertise related to the working of the stock market, performance of stocks, market predictions, and so on. Besides, they have access to the market database and research findings of brokerage firms with which they are associated. That is why they can provide excellent investment advice to their clients.

  • Portfolio management services

Stockbrokers also provide portfolio management services to their clients. They analyse the investor’s investment objectives and use their expertise to create an investment portfolio to fulfil those objectives. They also ensure that the investment portfolio of their clients coincides with their risk profile.

  • Limited banking services

Some stockbrokers also provide limited banking services to their clients, such as Demat accounts, electronic deposits, and withdrawals. For example, investors can open a Demat account with a stockbroker and use it to sell/purchase shares in the share market. They can also deposit and withdraw money from their account according to their convenience.

What Are the Different Types of Stockbrokers in India?

Now that you know the definition of stockbroker and the services offered by them let’s look at the different types of stockbrokers in India. Based on the services they provide; stockbrokers are primarily classified into two types:

1.Full-service stockbrokers

Full-service stockbrokers are traditional stockbrokers that provide an array of products and services to their clients. These services may include buying and selling of stocks in the stock market, investment advisory, portfolio management, retirement planning, and tax-saving advisory, among others.

Given the wide range of services they offer, full-service stockbrokers charge hefty fees from their clients. These stockbrokers are useful for high net-worth individuals and those who don’t have an in-depth knowledge of the market.

2.Discount stockbrokers

Discount stockbrokers have increased in number as well as popularity in the last few years. They have come into existence mainly due to the increased use of the internet for share trading. These stockbrokers are also known as online stockbrokers.

Discount stockbrokers usually do not offer any investment advisory to their clients. All they provide is an online platform to place buy or sell orders in the stock exchanges. Hence, they charge fewer commissions from their clients, which are mostly flat fees.
Also Read: Low Brokerage & Low Cost Discount Brokerage

Conclusion

With the emergence of the internet, many people have started trying their hands in the stock market. Stockbrokers play a crucial role by facilitating buying and selling of stocks in the stock exchanges. They also provide advisory services which might help their clients create a robust investment portfolio as per their financial goals and risk appetite.

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Frequently Asked Questions

Full-service stockbrokers are suitable for investors who want expert guidance for making their investment decisions. They are also useful for high-net-worth individuals who need someone to manage their investment portfolio.

As per the SEBI guidelines, a retail investor is not allowed to trade directly in the stock market. Instead, they need to do it through a SEBI-registered stockbroker who acts as a middleman between the investor and the stock exchange.

Full-time stockbrokers charge a fixed percentage of the total value of the securities traded by their clients. It can be between 0.25% to 0.75%. Discount brokers charge a flat fee from their clients against every transaction. It can be as low as ₹10.