What is a Stockbroker?

A stockbroker is a person who buys and sells the shares of companies listed on a stock exchange on behalf of investors.

In their most well known role, stockbrokers act as the agents of third-party clients in transactions to buy and sell shares. Individuals are able to own and dispose of shares, but only Stockbrokers may physically participate in the trading that takes place on the stock exchange each day.

The term 'stockbroker' is used to describe both the Firms that provide stockbroking services, and the Individuals that deliver these services to clients.

As you can see from this diagram, there are two main types of stockbroking firm - Full Service Stockbrokers and Online Stockbrokers.

Both deliver the same trade execution service to their clients (i.e. the buying and selling of shares) and operate with the same ‘best execution’ responsibilities, however there are two key differences:

• the range of services they provide
• the way they engage with their clients

In addition to trade execution, Full Service Stockbrokers provide personalised stock selection and portfolio construction advice. Each Investor is the client of an individual stockbroker (although sometimes stockbrokers work in small teams with support personnel). Historically stockbrokers have been remunerated for their work upon the successful execution of a trade, with commission payable based on the value of that trade. Full Service Stockbrokers charge a higher price per trade than Online Stockbrokers, to cover the cost of delivering a personalised service.

Typically, the service offered by Online Stockbrokers centers around trade execution with fewer additional services and limited if any personal interaction, in exchange for a lower commission rate per trade.

To operate as a Stockbroking Firm in Australia, either full service or online, the firm must be authorised by a stock exchange. ASX Limited operates the largest stock exchange in Australia. There are currently four stock exchanges in Australia.

To operate as an individual Stockbroker in Australia, specific regulatory requirements must be fulfilled (the exact requirements vary depending upon the services the stockbroker wishes to provide) and the stockbroker must be listed on the ASIC Financial Advisers Register.

The Australian Securities and Investments Commission regulates the stockbroking industry in Australia.

To continue the process of finding the right stockbroker, read What do stockbrokers do?

Or click here to find the stockbroker that’s right for you