A stock broker is an intermediary between the stock market and investors who facilitate trading and other financial services related to securities trading. He is a financial professional with the command and skill to exchange stocks in the market.
The broker is an individual or firm member of the stock exchange with the authority to do trade. Since the securities exchange only takes orders from individuals or firms who are members of that exchange, individual investors and traders need the service of these intermediaries to carry out trading activities. Market participants rely on the knowledge and analysis of these experts to understand the market dynamics and invest accordingly.
History of Stock Brokerage in India- Milestones
India’s Stock Exchange journey commenced with 22 stockbrokers in the Town Hall of Bombay under a banyan tree in 1875. This informal meeting marked the birth of the Bombay Stock Exchange (BSE), the foundation stone of the Indian Stock Exchange.
- In 1875, the Native Share and Stockbrokers Forum was established. It later became BSE’s brokers’ forum, representing the interests of stockbrokers.
- The Calcutta Stock Exchange was established in 1908.
- Other regional stock exchanges were established in different parts of India.
- The Securities Contracts (Regulation) Act was enacted in 1956, providing a legal framework for securities regulation.
- The Securities and Exchange Board of India (SEBI) was established (1988)as an autonomous regulatory body. SEBI was given statutory powers in 1992, transforming it into a critical player in regulating the securities market, including brokers and brokerage firms.
- In the late 1990s and early 2000s, stock exchanges underwent demutualization, separating ownership and management, a move aimed at enhancing transparency and efficiency in the functioning of exchanges.
- The National Stock Exchange (NSE) was established in 1992. It quickly emerged as a significant player, introducing modern technology and trading practices.
- The late 1990s and early 2000s witnessed the advent of online trading platforms. The Internet revolutionized how investors and brokers conducted transactions, making stock trading accessible to a broader audience.
- Today, India’s stock brokerage industry is diverse and competitive. It encompasses traditional full-service brokers, discount brokers, and online trading platforms. The industry continues to evolve with technological advancements and regulatory changes.
Suggested Read: SEBI Registered Telegram Channels in India
Functions of Stock Brokers
Along with technological advancements, the working of brokers also went through changes. Given below are some of the functions of stock brokers:
- Executing the trades
Stock brokers manage the buying and selling of orders on behalf of their clients. They act as the intermediary between buyers and sellers in the financial market.
- Portfolio Management
Brokers manage clients’ investment portfolios on their behalf, including asset allocation, diversification, and regular rebalancing.
- Market Research and Analysis
Brokers provide clients with market research and analysis. It will help the client to make informed decisions.
- Investment Advisory
Stock brokers provide their clients with investment advisory based on their investment goals, risk tolerance, and market conditions.
- Risk Management
Brokers assist their clients with risk management by informing them about the potential risks of each security.
- Order Routing and Execution
Brokers are responsible for routing the client’s orders to a suitable stock exchange or trade venue for execution. They ensure placing orders at the right time for the best prices.
- Account Management
Brokers handle tasks such as account opening, closing and transfers. They manage client accounts, including transaction records, order records, and account statements.
- Regulatory Adherence and Compliance
A broker should comply with regulations and ensure client transactions conform to rules and legal requirements. They work to prevent market manipulation and fraudulent activities.
- Technology Integration
Brokers integrate technological advancements to provide their clients with online platforms, mobile applications, and tools. Clients can use it to execute the trade, manage portfolios and analyze market trends.
Types of Stock Brokers
Now that you know who brokers are and what they do. Wondering Which stock brokers to choose? It is essential to understand different types of brokers and the needs and preferences those brokers cater to. So let us see the different types of brokers below:
Full-service brokers or Traditional brokers
Full-service brokers provide extensive services, including portfolio management, research and investment advice, and personalized customer support. They offer a one-stop solution to all investment-related activities. They typically charge higher fees and are preferred for investors who need personalized advice and are ready to pay higher fees.
As these stock brokers undergo rigorous training and processes to get certified, their expertise is worthy of the higher payment they charge.
Also Read: Investment Schemes for Women
Discount Brokers
Discount brokers focus on executing trades at lower costs than full-service brokers. They provide minimal advisory and analytic services. Investors can manage their portfolios independently without much interference from brokers.
Apart from being inexpensive, their online presence gives investors the advantage of time and place. Investors can use online platforms to invest without meeting the discount brokers personally.
Discount brokers are ideal for coast-conscious investors ready to do it alone.
Though Full-service and discount brokers are the major types of brokers, there are specific subsections of brokers based on the mode and method of delivering services. They are:
Online brokers
Online brokers function digitally and provide convenience to investors in managing their portfolios and investing. They provide user-friendly interfaces and real-time market data to investors at their fingertips. They can be either full-service brokers or discount brokers.
Floor Brokers
Floor brokers operated on the trading floors of the stock market to execute trade on their client’s behalf. Though rare in this digital age, they still play a role in specific markets. They manage orders in person on the trading floor.
How are the Stockbrokers regulated in India?
Stock markets in India are regulated by the Securities and Exchange Board of India, which is the primary regulator of the securities market in India. Stockbrokers and other market intermediaries need to register with SEBI. They need to follow the code of conduct prescribed by SEBI, including fair dealing and responsibilities towards clients and the market.
Also Read: Functions of SEBI
SEBI continuously monitors the activities of stockbrokers and conducts audits and inspections.SEBI can take enforcement action against stock brokers for violation of regulations they set, including cancellation of registration.
Qualifications Needed for a Stock Broker in India
As the regulatory authority, SEBI sets the qualifications required to become a stockbroker in India. Apart from those standards, certain firms may demand other educational and skill criteria to become a broker with their firm. We are adding here the mandatory and desirable requirements to pursue a stock broker career.
- Educational Qualifications
A bachelor’s degree in finance or Business Administration is desirable to work with an institution. However, higher secondary completed students with sufficient experience are also eligible to become brokers in India.
- Examination
To become a stockbroker, passing the FINRA exam is necessary. The Financial Industry Regulatory Authority administers the exam and requires sponsorship by a FINRA member firm or a Self-Regulatory Organization (SRO).
- Registration with SEBI
Individuals or firms wishing to become stock brokers should register with SEBI. This registration must fulfill the criteria SEBI listed and submit the required documents.
- Stock Exchange Membership
Stock brokers must become members of a recognized stock exchange in India, such as the Bombay Stock Exchange or the National Stock Exchange. This procedure includes meeting membership criteria set by respective exchanges.
- Financial Soundness
The entities must meet financial requirements set by SEBI to become a stockbroker. This requirement includes minimum net worth and maintaining it.
Top 10 Brokers in India
- Zerodha
- Upstox
- ICICI Direct
- HDFC Securities
- Kotak Securities
- Sharekhan
- Angel Broking
- 5paisa
- Motilal Oswal
- Axis Direct
Frequently Asked Questions about Brokers
Who is a stockbroker?
A stockbroker is a SEBI-registered financial specialist who is an intermediary between investors and the stock market.
Why Do You Need a Broker?
Stock brokers provide individuals with the stock market and sometimes executive the trade for you. They provide insights as the experts in the field and ensure you follow regulatory requirements. You will be informed about the market movements to make an informed decision with the help of a broker.
How to select a stockbroker in India?
Some factors to consider before selecting a stock broker in India are:
- Check the broker for SEBI registration and compliance with its regulatory requirements.
- Check for the Performance of the trading platform.
- Brokerage charges.
- Review and reputation
- Accessibility
- Confirm the range of financial instruments offered by the broker.
- Account opening process
- Security and Technology
- Availability of Educational resources,
Can you invest directly in the stock market without a broker?
No. You can not invest directly in the stock market without a broker. While you can invest in initial public offerings from company websites and government securities and bonds directly from RBI, you need a broker registered with SEBI to invest in the stock market.
Is a stockbroker a promising career?
You can progress in your career with experience and expertise over the period. If you can build a large client base, it will be a lucrative opportunity for you.
