Brokerages: What Are They?

Before we actually get to discussing Brokerage Firms, we should understand a few important things. Therefore, let us have a look at a few important aspects before we start knowing about brokerages.

Investment:

The process of putting money into a process while expecting profits from it is known as making an Investment. There are various types of investment, which allow individuals to gain profits from the money they’ve invested. Some examples are:

  • Depositing money in a bank
  • Investing in real estate
  • Buying shares of a company

Buying shares in a company has been one of the most popular types of investment, which is helpful for people. Long-term investors who want to make money without having to deal with a great amount of risk and short-term investors who want to trade shares on a regular basis with a high amount of risk are two types of investors. Investing in shares has been helpful to both these types of investors for many years.

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So, what exactly is the process of buying shares? Shares, collectively known as stocks, are traded with the help of trading platforms or brokerage firms. All the stocks are listed on certain types of institutions called ‘Stock Exchanges’, and this whole ecosystem can be referred to as ‘Stock Market’.

History:

In the beginning, all the trading activity was carried out at stock exchanges, where a lot of people were present who were called brokers. When a person is interested in buying shares, he or she would call the exchange and inform them of this, they would shout loudly and tell the other staff members. They would mention that information on paper and send it through a tube. In this way, a purchase or selling of a stock or stocks was confirmed. You can get an idea of the whole scenario if you’ve watched the notorious movie ‘The Wolf of the Wall Street’.

Brokerage Firm:

Nowadays, things have changed a lot, and by lot, we mean way different than before. With the everyday advancement in technology, people are seeking ways to do things in a comfortable, convenient, and easy manner. Such necessities have given birth to online brokerage firms, which are also known as brokerages or online trading platforms.

The primary objective of these brokerage firms is to allow people, which includes both sellers and buyers, to get involved with the transaction of stocks. To put it simply, Brokerages are the middlemen that allow you to buy or sell stocks on the stock market, in a convenient way by charging certain types of fees.

With the help of brokerages, not only can you be able to invest in stocks but you can also invest or trade with bonds, ETFs, futures, options, cryptocurrencies, and other financial instruments.

Types of brokerages:

There are three different types of brokerages, which are mentioned below.

  • Full-service brokerages – Not only does a full-service brokerage allow you to access the investment services, but they also provide you with the professional services of an expert financial advisor working on their network. This financial advisor will help you with the crucial aspects such as making the right decision regarding investments, creating a nice investment strategy, providing support with your needs related to making an investment, etc. Because of the requirement for extra personnel, full-service brokerages happen to be one of the expensive brokerages.
  • Discount brokerages – usually, discount brokers were once traditional institutions that had a physical presence and did everything physically, yet they had to opt for providing services online. With the help of discount brokerages, people can do everything by themselves and even get the services without having to pay a lot of money in the form of fees and charges.
  • Robo-advisors – As the name itself suggests, Robo-advisors are fully automated online trading platforms that are unique and latest. Instead of financial advice from humans, people get suggestions that have been made with the help of computer algorithms and some indicators like technical analysis, history, previous performance, etc. Compared to the two methods that have been mentioned above, Robo-advisors are relatively less pricey.

 

Platforms:

Usually, there are three types of platforms (methods) through which a person can avail of the services offered by a brokerage firm. They are the following:

  1. Desktop Platform
  2. Web Platform
  3. Mobile Platform
  • Desktop Platform – A Desktop Platform is a computer software of the online brokerage that can be used to access the services offered by that respective brokerage.
  • Web Platform – A web-based platform or web platform, of an online brokerage, is a website that can literally be accessed by typing the name of the website into a browser.
  • Mobile Platform – A smartphone-based platform, which allows an individual to acquire the services offered by a brokerage, with the comfort of their mobile phone.

 

Creating an account:

The process of creating an account with a brokerage is very simple, takes very little time, and can be done completely online. We have presented you with a step-by-step procedure of creating an account with a brokerage firm, which is as follows.

  • First, you open the account creation page either on a website or a device (computer or mobile).
  • After that, you will be asked to fill in the details such as name, email, and other information.
  • Next, you will be required to verify by providing identity proof and address proof.
  • And after that, you will be required to add your bank details/credit card details so that you will be able to fund your account.
  • Voila! You have successfully created an online brokerage account.

In general, the process of creating a brokerage account would usually take around a few minutes, yet it might take a few days for some brokerage firms. The reason for this is that these specific brokerages would require the documentation to be provided by mail and the verification process might take a while.

 

Fees: 

There are two types of fees when a person opts to acquire the services offered by a brokerage, which are given below.

Trading costs – These are the fees and charges that you typically have to pay while trading with the help of your brokerage, which includes commission, spread, margin fees, conversion fees, etc.

Non-Trading costs – These are the costs that have nothing to do with your trading activity, which are inactivity fees, account opening fees, withdrawal fees, deposit fees, etc.

Best online brokerages in 2021:

As we got familiar with all the aspects of a brokerage firm, now let us have a look at some of the best in 2021.

  • TD Ameritrade
  • Interactive Brokers
  • Charles Schwab
  • Fidelity
  • E*TRADE
  • Webull
  • Merrill Edge
  • Robinhood
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