What is a 'Broker Association'

A broker association is a permitted association between exchange members who have shared responsibility for the execution of orders placed by their customers, essentially acting as one brokerage firm. These members thereby gain access to a collective pool of un-transacted orders, and they share the profits and losses associated with these trading activities.

BREAKING DOWN 'Broker Association'

A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. Broker associations are formed among members of an exchange organization. An exchange is a physical or virtual place where buyers and sellers of securities, such as stocks and bonds, come together to transact with each other. The New York Stock Exchange and the NASDAQ are examples of exchanges in the United States.

Broker Associations in Practice

Brokers must become members of the exchanges on which they trade, and brokers from financial institutions both large and small are registered members of exchanges. Brokers from larger financial institutions are able to capitalize on economies of scale internally on account of their large size and client base. Smaller brokers and financial institutions are not necessarily able to participate in these economies of scale on their own. As such, broker associations developed, and are permitted by regulatory bodies, to allow smaller exchange members to capitalize on economies of scale through cooperation and shared responsibilities. The members of a broker association share responsibility for taking client orders, filling the orders, placing trades and so forth, and share in both the costs and profits of the transactions. Because they are able to work together to reduce costs and get better volume-based prices, the smaller brokers within the broker association can offer better deals for their clients than they could offer if they worked trades individually.

RELATED TERMS
  1. Give Up

    Give up is a procedure in securities or commodities trading where ...
  2. Broker

    1. An individual or firm that charges a fee or commission for ...
  3. Agency Broker

    An agency broker is a broker that acts as an agent to its clients. ...
  4. Outside Broker

    The term outside broker has several applications in finance. ...
  5. Clearing Broker

    A clearing broker is a member of an exchange that acts as a liaison ...
  6. Business Broker

    A business broker is a company that assists in the purchase and ...
Related Articles
  1. Investing

    What is a Discount Broker?

    A discount broker is a stockbroker who carries out "buy" and "sell" orders at a reduced commission compared to a full-service broker, but provides no investment advice.
  2. Trading

    How Forex Brokers Make Money

    Forex brokers set their prices based on commission, spread, or a combination of both. Traders have to be cautious in the thinly regulated forex market.
  3. Investing

    5 Misconceptions About Discount Brokers

    While discount brokers are the perfect choice for some investors, their business model could be detrimental to others.
  4. Personal Finance

    Advantages And Disadvantages of Using a Mortgage Broker

    Mortgage brokers may be able to find you the loan of your dreams, but you should consider the potential downsides before hiring one.
  5. Trading

    5 Tips For Selecting A Forex Broker

    Discover the best ways to find a broker who will help you succeed in the forex market.
  6. Personal Finance

    New York City Apartment Hunting: A Broker Or Not?

    New York City is one of the most difficult-to-navigate real estate markets in the world. A broker can guide you and, surprisingly, even save you money.
  7. Managing Wealth

    The Top U.S. Regulated Stock Brokers (AMTD, IBKR)

    To operate in the United States, stock brokers must comply with SEC regulations that protect investors. Here is a look at some of the best.
  8. Trading

    How To Pay Your Forex Broker

    Learn how to evaluate forex broker fee/commission structures with these three types of commissions and find the one that will work best for you.
  9. Personal Finance

    The Role of a Prime Broker

    Understand the role of a prime brokerage, and learn about the services investment banks provide for hedge funds while in the role of being a prime broker.
RELATED FAQS
  1. Can a Broker Sell Your Stocks Without Permission?

    In this article, find out if and when it's legal for a broker to sell securities from a customer's account and portfolio ... Read Answer >>
  2. Why Are Securities Held 'In Street Name'?

    Buying or selling securities through a broker means they're held in your broker's name. Read Answer >>
  3. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
Trading Center