Site icon Herold Financial Dictionary


Brokers are professional intermediaries that work on behalf of both a seller and a buyer. When brokers function as agents on behalf of only a buyer or seller, they become representatives and principal parties in any deal. Brokers should not be confused with agents, who instead work on the behalf of a single principal. In the financial world, there are stock brokers, commodity brokers, and option brokers.

Stock brokers are highly regulated broker professionals that sell and buy stock shares and related securities. They work on the part of investors who purchase and sell such securities. Stock brokers transact through either Agency Only Firms or market makers in a given security. These types of brokers are commonly employees of brokerage firms, such as Morgan Stanley, Prudential, or UBS.

Stock brokers are essential in stock transactions, since these exchanges of stocks can only occur between two individuals who are actual members of the exchange in question. A regular investor can not simply enter a stock exchange like the NASDAQ and ask to buy or sell a stock. This is the role that brokers fulfill.

Within the stock broker realm, three different kinds of broker services exist. One of these is advisory dealing, in which a broker makes recommendations to the client of what types of shares to purchase and sell, yet allows the investor to enact the ultimate decision. A second type is an execution only broker, who will simply transact the customer’s specific buying and selling instructions. Finally, discretionary dealing involves brokers who learn all about the customer’s goals in investing then carry out trades for the customer based on his or her interests.

These same functions are carried out by other financial market brokers as well. Commodities brokers deal in commodities contracts for clients in commodities such as gold, silver, wheat, and oil. Commodities contracts are comprised of options, futures, and financial derivatives. These commodities brokers act as middle men to an investor to transact buy and sell orders on such commodities exchanges as the New York Mercantile Exchange, Commodities Mercantile Exchange, and New York Board of Trade.

Options brokers deal in options on stocks, commodities, or currencies, depending on what their area of specialty proves to be. They specialize in providing research, trading, and education on options to individual investor clients. Besides handling the main options that include straddles, option spreads, and covered calls, a number of options brokers facilitate trade in related fields that include ETF’s, stocks, bonds, and mutual funds.

Brokers in the financial world are typically regulated by one oversight group or another. Stock brokers, for example, are licensed and overseen by the Securities Exchange Commission. They must pass an exam called the Series 7 in order to practice their trade as a stock broker. Commodities brokers, on the other hand, must obtain a Series 3 license from the Financial Industry Regulatory Authority. They are closely monitored by the Commodities Futures Trading Commission. Options brokers are monitored by the regulatory agency associated with the area of options that they trade.

Exit mobile version