How do broker houses operate?

The main contributor to the implementation of online trade worldwide is broker house. Work is carried out in a well-organized market called the stock market. Broker firms, in simpler terms, are legal entities which perform a variety of tasks. These tasks include advisers, broker-dealers, managers, market makers, etc…

But all the permissions to perform these tasks, you can get from certain commissions. Surely you’ve heard many times the term “broker-dealer company.” Before we explain this concept, we need to know who the broker is. The broker is, in the simplest terms, a legal person who passed the exam in front of the commission above. In that way, that person acquires the right, receives a so-called “license” that allows it to perform broker-dealer operations legally.

Any person, to be able to perform the function of a broker, must be employed in one of the broker houses. The main role of the broker is to represent the interest of the client. Of course, all these clients have put their trust in the broker house, so the broker job is sometimes very difficult. Representing the client is done in a way that you are directly involved in trading stocks or shares. To represent someone is not always easy. In situations when you know that the client is going to lose his money, and you might do something different from the client’s regulations to save him, it would mean you quit. When it comes to representation, the broker must act exactly as the client wants. This definition implies that the broker is not allowed to give his opinion and advice on how to act in different situations.

hp_courses_stocksNow that we know who the broker is let’s return to the subject broker houses. In case the broker firm representing themselves, they represent their account, then they are called dealers. The main difference between brokers and dealers is that broker houses are always earning the business. Brokers for their services charge customers according to certain rules to the commission. But because the broker house or in this case, dealers earn on the difference in sales prices. Of course, the clear thing is that brokers that act as dealers have a huge risk. Also very terms “broker” and “dealer” do not always have to refer to the broker house. Brokers and dealers are also known as the real person who is employed. And as we said, it would be possible to hire a broker house; you need a so-called license, or you need your permission to work.

trading-floor-sliderAll broker firms are conditioned to perform their trade exclusively on an organized market, so-called stock exchange. Of course, broker firm cannot do what she wants; she cannot behave as an independent. Here are strict rules prescribed by law that must be respected. In the case of non-compliance, broker loses its significance and loses license that allows it to access the market. As we have already mentioned, broker houses represent the interest of the client which gives them an order of operations in writing.