the fee or commission paid by the client to an individual or firm for acting as the intermediary in a transaction.
The main function of a brokerage firm is to solve the client's problem for a fee. Other functions performed by a brokerage firm include lending information support about trading platforms and their various terms and conditions. A brokerage can also execute trade deals on the financial market platform on behalf of the client. It can act as a vault for storing valuable customer data and prevent any infringement.
Brokerage charges are induced by a broker responsible for connecting the buyer and seller for completing a transaction. This brokerage charge to be paid varies based on the type of brokerage firm employed by the person buying the stocks. The amount also depends on the list of services offered by the firm and mediating the transaction.
Those that work at a brokerage are known as a broker; they are the mediator between the buyer and the seller. The broker is the one responsible for setting up the transaction. The broker receives a payment in the form of a commission for the services offered to facilitate the trade. There are various brokerage specializations, including stock, credit, leasing, insurance brokerage, etc.
Real-World Example of Brokerage
There is a wide range of brokerage firms operating in the financial market. They vary based on the scale of operations and the suite of services offered to the clients. One of the biggest brokerage firms in the world is Charles Swab Corporation. It is a leading U.S. stock brokerage firm with over $4 trillion in client assets. It was founded in 1971 and is based in San Francisco.
It is one of the oldest and cheapest discount brokerages in the U.S. The company boasts of over 1.4 million active banking customers. The company operates Schwab Bank, allowing its clients to link their trading accounts to their bank accounts.
In addition to brokerage services, the firm also provides clients a wide range of investment products like stocks, mutual funds, fixed income products, etc.
Types of Brokerage
- Stock Brokerage: A stock brokerage is a professional mediator who facilitates buying and selling assets in the stock market. Operations on these stock market platforms tend to be complicated, with many approvals and technicalities involved. A stock brokerage makes this much more accessible by bringing loads of expertise and technical know-how to the table in exchange for a fee.
- Forex Brokerage: A forex brokerage is an intermediary that is involved primarily in the forex currency market. Traditionally this market is only accessible to certain organizations; hence individuals seeking to enter this market can use forex brokerages to facilitate transactions in this domain.
- Real Estate Brokerage: A real estate brokerage is involved in the buying and selling real estate assets like residential properties, offices, warehouses, etc. Like any other brokerage, a real estate broker will receive a percentage commission of the real estate transaction.
In the financial market, each brokerage firm provides a different suite of products and services for its clients.
- Full-Service Brokerages: These are the most expensive type of brokerage services available. These companies provide a professional financial advisor to manage all the investment decisions on behalf of the client and provide the best advice and support.
- Discount Brokerages: These are primarily online portals where investors can make their own trading decisions for a significantly lower fee. This is suitable for investors who want more control over the decisions made on their assets.
- Robotic-advisors: This is a relatively newer form of brokerage service that is often quite cheaper than traditional services. It involves minimal to no human intervention on your trading decisions. Investment management services are carried out by algorithms that are engineered to ensure maximum benefits to the user.