What is a Stockbroker?

A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. A stockbroker may also be known as a registered representative, investment adviser or simply, broker. Stockbrokers are usually associated with a brokerage firm and handle transactions for retail and institutional customers alike. Stockbrokers often receive commissions for their services, but individual compensation can vary greatly depending on where they are employed. Brokerage firms and broker-dealers are also sometimes referred to as stockbrokers themselves. The most commonly referenced stockbroker firms are discount brokers.


What Is a Stockbroker?

Key Takeaways

  • The role of a stockbroker has changed dramatically since the proliferation of the internet.
  • Discount broker firms dominate the majority of customer interaction.
  • Lower service fees have made the stock market available to more investors.
  • Stockbrokers require a financial education and the passage of several industry exams.

Understanding the Role of a Stockbroker

Being able to buy and sell stocks and other securities requires access to one of the major exchanges such as the New York Stock Exchange (NYSE) or the NASDAQ. To trade on these exchanges you must be a member of the exchange or belong to a member firm. Member firms and many of the individuals who work for them are licensed as brokers or broker-dealers by FINRA. While it is possible to buy stock shares directly from the company that issues them, it is much simpler to work with a stockbroker.

It used to be far more expensive to get access to the stock market and therefore was only cost-effective for high net-worth investors. These investors would typically work with a full-service broker and pay hundreds of dollars for executing a trade. However, the rise of the internet and subsequent advances in technology paved the way for discount brokers to provide less expensive, faster, and more automated access to exchanges. This has allowed investors to trade the stock markets with smaller transaction fees, making it plausible to invest and trade even with much smaller sized accounts. So much so that the majority of accounts in the market are held with discount brokers.

Individuals who work as brokers, but are employed by discount broker firms, may work as over-the-phone agents that answer brief questions, or as branch officers in a physical location. But there are a comparatively smaller number of stockbrokers who work for investment banks or specialized brokerage firms. These companies handle large and specialized orders such as the purchase or sale of large blocks of stock, or the exchange of shares not actively traded.

Because of discount brokers, nearly anybody can afford to invest in the stock market, even individuals who are based overseas. A more recent development in broker services is the introduction of roboadvisers, algorithmic investment management carried out via web or mobile app interface with minimal human interaction, for even less servicing fees. One downside to these discount platforms is the lack of personalized service only a dedicated stockbroker can offer.

Educational Requirements

A bachelor's degree in finance or business administration is typically required for stockbrokers working with institutional clients. A strong understanding of financial laws and regulations, accounting methods, principles of economics and currency, financial planning and financial forecasting are useful for working in the field as well. Most successful stockbrokers have strong interpersonal skills and are able to maintain strong sales relationships.

Various Country Licensing Requirements

Different countries have different credentialing requirements for stockbrokers. In the United States, registered brokers must hold a minimum of the FINRA Series 7 and Series 63 or 66 licenses, and must be sponsored by a registered investment firm. Floor brokers in the U.S. must also be members of the stock exchange where they are housed. In Canada, would-be stockbrokers should be currently employed by a brokerage firm and are required to complete the Canadian Securities Course (CSC), Conduct and Practices Handbook (CPH) and the 90-day Investment Advisor Training Program (IATP). In Hong Kong, applicants have to be working for a licensed brokerage firm and pass three exams with the Hong Kong Securities Institute (HKSI). However, passing all three exams does not guarantee a license because it still has to be approved by the financial regulatory body.

In Singapore, becoming a trading representative requires passing four exams, Modules 1A, 5, 6 and 6A, administered by the Institute of Banking and Finance. A license is applied through the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX). In the United Kingdom, stockbroking is heavily regulated and brokers must achieve qualifications from the Financial Conduct Authority (FCA). Precise qualifications will always depend on the specific duties required of the broker as well as his employer.

Global credentials are also becoming increasingly popular as signals of legitimacy and financial acumen. Examples include the certified financial planner (CFP) and chartered financial analyst (CFA) designations, among several others.