The Capital Market was recently launched, to understand its operations Christine O Asaba explains
A stock broker is an individual or firm that charges a fee or commission for executing transaction orders submitted by an investor.
As an investor, you will need a lot of information in order to determine risk; you must understand and interpret such information which in most cases appears in more technical terminologies.
Generally, a broker represents the seller of a property and must be licensed by a responsible professional agency. A broker’s duties may include: determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients with regard to offers and related matters.
Stockbrokers earn a living by selectively sharing knowledge that the general public can’t easily access. But, like it or not, they offer a direct link between individual investor’s and individual companies.
However, technology and the internet have made it easier for individual investors to take control of their portfolio investments which limits the work of full-service brokers; occasionally the basic rule still requires some kind of broker, if you want to trade stocks and bonds.
This therefore creates discount brokers who carry out transaction orders at a reduced commission but provides no investment advice compared to a full-service broker who offer investment advice.
A broker charges commission for services rendered in return for providing investment advice and/or handling the purchase or sale of securities. Most major, full-service brokerages derive most of their profits from charging commissions on clients’ transactions.
However, commissions vary widely from brokerage to brokerage. The brokerage with the lowest commissions is not necessarily the best one. Discount brokerages offer no advice, which can prove to be troublesome for many rookie investors.
Just imagine when you are new in the market; you have no experience and no knowledge about that market.
On the other hand, full-service brokerages offer a more personalised service, but commissions are much higher. It is most probable that the higher the cost the higher the returns, other factors remaining constant.
However, there is the potential for a conflict of interest to develop between brokerages that charge commissions and their clients.
Because of commission, brokers will not get paid very much if their clients do not conduct many transactions, unethical brokers may encourage clients to conduct more trades than necessary. I believe that such investments are highly regulated thus protecting investors.
Costs of stockbrokers
One may think that engaging a broker and accessing stock market is expensive, but the emergency of internet triggered an explosion of discount brokers, which allow investors to trade at a lower cost, but provide no personalized advice. Because of discount brokers, almost anybody can afford to invest in the market now.
For those who wish to do their own research or don’t want to invest a lot of money, a discount broker is an excellent way to invest.
In any profession, you will find people who take advantage of those who aren’t in the know. Whenever you buy something, there is the possibility of being cheated. Furthermore, with a full-service broker you purchase advice, which is hard to price. In fact, there are many brokers who do a phenomenal job of guarding their clients’ interests. There are also many discount brokerages that provide remarkable services for a reasonable price that a moderate investor can afford.
How to become a broker
Being a broker requires, formerly the license to execute orders to buy or sell securities. There must be rules and regulations to guide brokers.
It is in this regard therefore that, rules and regulations have been set by Rwanda Capital Market Advisory Council (SMAC), an organisation that governs and oversees the security investment industry in Rwanda.
When an individual has a license from CMAC, he or she is then a member of the Rwanda Capital Market and has the ability to buy or sell bonds and or stocks.
In the stock market as you may know, there are many participants with different roles. A person or firm in the business of buying and selling securities operating as both a broker and a dealer depend on the transaction.
Technically, a broker is only an agent who executes orders on behalf of clients, whereas a dealer acts as a principal and trades for his or her own account. Because most brokerages act as both brokers and principals, the term broker-dealer is commonly used to describe them.
A dealer is an individual or firm willing to buy or sell securities for their own account and one who purchases goods or services for resale to consumers.
A dealer differs from an agent in that a dealer acts as a principal in a transaction. That is, a dealer takes ownership of assets and is exposed to inventory risk, while an agent only facilitates a transaction on behalf of a client. It’s up to you to pick the broker that meets your needs. If you are new to the market and don’t have a solid understanding of the various securities, check out for the list of stockbrokers for guidance and recommendation.
A day in the life of a broker is an exciting and varied one. Many brokers enjoy their position so much that they make it a life-long career. Other brokers go on to different positions in the financial services industry such as an analyst or portfolio manager. Finally, a broker is also a sales agent and is responsible for obtaining and maintaining a client roster.