What Is a Two Dollar Broker?
A two dollar broker is a member of the New York Stock Exchange (NYSE) who oversees trades and executes orders for another broker’s client. A broker might choose to have a two dollar broker do business for them because the trader is too busy to take on the work them self.
A two dollar broker may also perform orders for a broker who does not have an exchange membership on the exchange floor, although some brokers have both a presence on the stock trading floor and a two dollar broker who can handle orders at the same time.
Understanding a Two Dollar Broker
The two dollar broker name originated because, historically, brokers were paid $2.00 for a round lot trade of 100 shares. Today, the broker negotiates their commission, so a two dollar broker can make significantly more per trade.
The fee the two dollar broker typically receives is much higher than two dollars per trade. The name two dollar broker has stuck, though it’s no longer an accurate reflection of how large of a payment the broker receives.
How a Two Dollar Broker Is Paid
Unlike a commissioned broker, who works for a specific firm, a two dollar broker typically operates as an independent contractor who works for other brokers. Two dollar brokers may also be known as independent brokers, freelance brokers or sometimes independent agents.
Two dollar brokers may work on a flat-rate fee, or they can earn a percentage-based commission on the trade they make. The broker they work for will pay them. In other words, when a client makes a trade with a broker, the two dollar broker may execute the trade at the broker's behest. Though the client pays the broker a commission, the two dollar broker may receive part of that commission from the broker. In this way, a two dollar broker may be considered a third-party broker or a pass-through broker.
Because the Floor Brokerage Commissions structures have changed significantly, thanks to more competition and increased payment options, most brokers no longer receive a flat fee for their services. Instead, it’s more profitable for them to receive a commission for trades.