Brokerage Company - Explained
What is a Brockerage Company?
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Table of ContentsWhat is a Brokerage Company?What Does a Brokerage Company Do?Types of BrokeragesHere are some points to note about brokerage firmsAcademics Research on Brokerage Company
What is a Brokerage Company?
A brokerage firm is a firm that connects buyers and sellers for transactions. This firm can also buy and sell securities on behalf of clients. The services offered by brokerage firms are in exchange for a fee or commission. An individual can also act as a broker who helps to facilitate transactions between parties. In some cases, brokerage companies are investment firms or financial institutions that perform the duties of a broker in a transaction. These companies either act as middlemen or act in the best interest of the client they are representing.
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What Does a Brokerage Company Do?
In the actual sense, individuals act as brokers whether in the real estate or investment industry. The connect a buyer and seller of securities or help clients purchase or sell securities in exchange for a fee. Individual brokers can work for brokerage companies or function as independent agents in an investment or real estate transaction. The essence of brokers or brokerage firms lie in the fact that market investors or real estate buyers do not have sufficient information required to make the best decisions. Hence, the need to consult brokers who have accurate information about the market.
Types of Brokerages
Brokerage firms are also called a brokerage, they offer various products and services. Three major types of brokerage exist, they are;
- Robo-advisors: There are investment advisory channels that offer services using algorithms. The services of Robo advisors are low compared to the other two brokerage firms. Given that services offered on this platform require little or no human intervention, they charge fewer fees and commissions.
- Discount Brokerages: These are brokers that offer their services at a discount. Usually online platforms, discount brokerages allow investors and traders to make their own decisions through the 'do-it-yourself' channel. With this strategy, zero or low commission is paid by investors
- Full-service brokerage: This is the most expensive of all the brokerages. It offers professional advisory services to clients, manage clients above and take decisions on their behalf.
In addition to these three types of brokerage firms, others include independent brokerage firm and captive brokerage firm.
Here are some points to note about brokerage firms
- A brokerage firm performs the role of a middleman in a transaction by connecting buyers and sellers.
- A brokerage firm can also represent a client in a trade or buy and sell securities on behalf of clients.
- Brokerage companies offer their services in exchange for a transaction fee or commission.
- Brokers who have accurate information about the market can work for brokerage firms or act as independent agents.