Stockbroker: Definition & How to Become One

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Stockbrokers act as go-betweens for markets (such as exchanges) and the investing public. Brokers accept customer orders and attempt to fill them at the best feasible price. In exchange, they receive a charge known as a commission. Here’s all you need to know about a stockbroker, how to become one, the salary range, and top online stockbroker companies for you.

Who Is A Stockbroker?

A stockbroker is a financial expert who executes market orders for clients. A registered representative (RR) or an investment advisor is another term for a stockbroker.

Most stockbrokers work for a brokerage business and deal with a variety of individual and institutional clients. Stockbrokers are frequently compensated on a commission basis, though this varies by job.

Brokerage firms and broker-dealer companies are also colloquially known as stockbrokers. These include full-service brokers as well as cheap brokers, who execute trades but do not provide personalized investing advice.

Most internet brokers, at least at their most basic levels of service, are discount brokers, meaning that trades are handled for free or for a tiny set-price commission. Many online brokers now charge extra fees for premium-level services. To assist you in finding a broker that meets your needs, Investopedia keeps rankings of the best online brokers and best robo-advisors.

The Role Of A Stockbroker

Buying or selling stocks necessitates access to one of the major exchanges, such as the NYSE or the NASDAQ. You must be a member of the exchange or a member firm to trade on these exchanges. The Financial Industry Regulatory Authority (FINRA) licenses member businesses and many of their employees as brokers or broker-dealers.

While an individual investor can purchase stock shares directly from the company that issued them, working with a stockbroker is significantly easier.

Until recently, entrance to the stock markets was prohibitively expensive. It was only cost-effective for high-net-worth individuals or large institutional investors, such as pension fund managers. They utilized full-service brokers and could pay hundreds of dollars to have a trade executed.

However, the rise of the internet and accompanying technological advances cleared the path for discount brokers to offer online services with inexpensive, rapid, and automated market access. Apps like Robinhood and SoFi have recently catered to micro-investors, allowing even fractional share purchases. The majority of accounts in today’s markets are managed by the account owners and held by discount brokers.

Stockbrokers in the Twenty-First Century

Brokers hired by discount brokerage businesses may work as over-the-phone representatives (known as voice brokers) answering quick questions or as branch officers in a physical location. They may also consult with clients who have subscribed to the online broker’s premium tiers.

A lower proportion of stockbrokers work for investment banks or specialized brokerage firms. Large and customized orders are handled by these companies for institutional clients and high-net-worth individuals (HNWI).

Another recent advancement in broker services is the emergence of roboadvisers, which are algorithms that handle investments using a web or mobile app interface. Individual engagement is limited, which keeps fees low.

Micro-investors can buy fractional shares through mobile apps such as Robinhood and SoFi.

Educational Requirements For A Stockbroker

Stockbrokers are normally needed to have a bachelor’s degree in finance or business administration. Working in the field requires a solid understanding of financial rules and regulations, accounting processes, economic and monetary fundamentals, financial planning, and financial forecasting.

Global certifications, such as the certified financial planner (CFP) and chartered financial analyst (CFA) designations, are also becoming increasingly sought after as indicators of legitimacy and financial ability.

How to Become a Stockbroker

Professionals seeking employment in finance have several options for pursuing a career as a stockbroker. Here are some crucial steps that may assist you in getting there.

#1. Complete a Bachelor’s Degree

Stockbrokers must have a thorough understanding of finance, and most brokerage firms need at least a bachelor’s degree. Earning an undergraduate degree in a business-related field such as accounting, economics, or finance, such as an online bachelor’s in finance, can help aspiring stockbrokers gain knowledge of financial analysis and planning, investment techniques, financial institutions, and portfolio management.

#2. Complete an MBA

To become a stockbroker, many brokerage firms do not need candidates to hold a Master of Business Administration (MBA). However, the degree might be advantageous for stockbrokers searching for more competitive opportunities, a higher compensation, or a more senior role in their firm.

#3. Accumulate Professional Experience

Many organizations need candidates for broker positions to have professional expertise in business or finance. Internships with brokerage firms or other financial institutions can provide this experience. Other expertise in finance or a related industry is also advantageous for interns and professionals, as it can assist improve a stockbroker’s wage expectations.

#4. Pass the necessary qualification exams

Before becoming a stockbroker, all brokerage businesses will require workers to receive the proper government licenses. Each of these licenses, which are administered by the Finance Industry Regulatory Authority, validates that a financial representative is qualified and certified to perform in a specific subject. To get licensed, stockbrokers must pass the Series 7 — General Securities Representative Exam. Firms would frequently provide training to help stockbroker candidates prepare for these tests.

While not required for most entry-level positions, Chartered Financial Analyst (CFA) certification can help brokers advance their careers. Brokers must have a bachelor’s degree or equivalent work experience, a passport, and pass three tests to receive this certification, according to the U.S. Bureau of Labor Statistics (BLS). The Level I test consists of 240 multiple-choice questions covering the principles of financial analysis. The Level II test consists of a series of questions covering asset appraisal and the right use of investing tools. In turn, the Level III test includes all topics as well as the ability to design and manage portfolios.

Stockbroker Salary

The salary range for a stockbroker varies greatly, most likely due to the fact that many brokers operate on commission. The overall pay range for stockbrokers was $39,000 to $152,000, according to PayScale, with a median compensation of $57,000 recorded. The most important element influencing a broker’s income was experience, with more seasoned individuals earning far more than the national average.

A broker’s earning potential may also be affected by where he or she works. According to PayScale, stockbrokers in New York make a median compensation of $100,000, but brokers in places such as Austin, Denver, Fort Worth, and Indianapolis earn less than $60,000. Working in a full-service capacity or at a discount business, for example, may have an impact on a stockbroker’s income.

Future Growth Prospects for Stockbrokers

According to the BLS, the predicted rate of job growth for stockbrokers is 6%, with an estimated 23,300 new positions generated between 2016 and 2026. “An aging population and the decline of traditional pensions may boost demand for these workers, as individuals approaching retirement seek brokers to facilitate securities purchases,” according to the BLS. A stockbroker’s job security, on the other hand, is intimately linked to the health of the financial business.

During the 2008 financial crisis, many significant brokerage and financial firms went bankrupt or went out of business, leading many financial representatives to lose their employment and clients to lose their capacity to invest in the market. Future economic downturns may also have a negative influence on brokers. According to the BLS, financial services industry mergers, as well as greater automation of certain stock purchases, may delay hiring. “Financial firms will focus on hiring sales agents with specialized areas of expertise and strong customer-service skills,” the BLS predicts.

Best Online Stockbroker Companies

Stocks are one of the best long-term investments you can make to grow wealth, and buying stocks online has never been easier. But which online broker is the best for stock trading? This is determined by the type of investor you are and the features you require the most. Here are some of the best online stockbroker companies available.

#1. Charles Schwab

Charles Schwab has a long history of assisting individual investors, and that legacy continues to this day. From 2016 to 2018, J.D. Power ranked the company as “Highest in Investor Satisfaction with Full Service Brokerage Firms, Three Years in a Row.” Schwab ranked first among do-it-yourself investors in the 2020 study, but slid to second in the 2021 and 2022 rankings.

#2. Fidelity Investments

Fidelity will treat you well, whether you want a fantastic trading platform, reasonable commissions, or friendly customer service. This broker handles it all well, and it’s one of the easiest to use, especially for new investors, but it also works well for experienced investors.

#3. TD Ameritrade

TD Ameritrade is an excellent choice for investors of all skill levels, whether you need help getting started or are ready to use the broker’s powerful thinkorswim trading interface. In any case, you’ll most likely find what you’re looking for at TD Ameritrade. (Charles Schwab has acquired TD Ameritrade and plans to combine the two brokerages.)

#4. E-Trade

E-Trade is a solid alternative regardless of whether you are a passive or active investor, a novice or an expert. It also offers an excellent instructional component, which includes not only a library of teaching resources, but also a whirlwind of webinars, news snippets, and informative movies aimed at investors of all levels.

#5. Robinhood

Robinhood is a relative newcomer, but the online brokerage has quickly gained millions of devoted followers because to its commission-free trading and user-friendly smartphone app.

#6. Interactive Brokers

Interactive Brokers has long been regarded as a brokerage for professionals and active investors, with a robust trading platform and excellent trade execution.

#7. Merrill Edge

Merrill Edge is a full-service broker that provides high-quality tools for traders while also catering to new customers. That’s especially true given that the broker has over 2,000 locations inside parent Bank of America’s branches, making human advisors conveniently accessible, a particularly beneficial feature for younger investors in need of guidance.

#8. Ally Invest

Investors will love Ally Invest’s commission-free stock and ETF trades, 24/7 customer service, and trading platform, which more active traders will appreciate. You’ll also have access to news and independent research on equities you’re interested in, as well as a mobile app that keeps you connected while you’re on the road.

Can You Buy Stocks Online Without A Broker?

To purchase and sell stocks, most customers will choose to use an online broker. True, some corporations provide direct purchase programs that allow you to buy stock directly from the company, but these can be difficult to navigate and are unnecessary when you can buy stocks commission-free through most internet brokers.

Do Stock Brokers Make Money?

Stockbroking can be a rewarding profession. According to the U.S. Bureau of Labor Statistics, securities, commodities, and financial services sales agents, which includes stockbrokers, earned a median annual income of $62,910 in May 2021. 

Who Is the Biggest Stockbroker?

As of March 2023, Fidelity was the largest brokerage firm in the United States, with $11.1 trillion in assets under management and over 40 million individual clients.

Who Pays Stock Brokers?

The commission is normally paid by the investor who buys and sells stocks.

Do You Need A Degree To Be A Stock Broker?

The majority of companies require applicants to hold a bachelor’s degree. There is no formal major requirement, but a business degree is especially beneficial. A master’s degree can be beneficial for advancement, although it is not required.

Finally, stockbrokers work hard to help their clients reach their financial objectives. They keep up with financial news and economic trends, offer excellent advise to clients, and are constantly looking for new business. The field has great growth potential and can be financially beneficial for individuals who can acquire the fundamental trade skills.

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