What is Stock Broking
Stockbroking is a service rendered by a stockbroker to an investor to get an opportunity to trade shares of a particular institution. Stockbrokers trade shares both over the counter and on the exchange, depending on where they find best prices and also liquidity. Usually, the broker firm charges a commission on the trades it makes on behalf of the investor or a fee for holding its services.
Services Stockbrokers Offer
Brokers offer three different types of services. One, they can be consulted for an execution duty only, whereby they complete orders on behalf of a client, and no advice is offered. Secondly, stockbrokers act as advisors who offer advice to the investor on where to trade; and will only trade on the orders that the client provides to them. Lastly, stock brokers act as discretionary who sell on behalf of a client and executes trades without the investor’s input.
There is a lot of misconception regarding stockbroking. Some people view it as a quick money making scheme while others use it as a saving plan. However stockbroking has its pros and cons, and it is only wise to dig deeper into what it entails before taking a step into the venture. Most stock brokers are not investors in stocks but only gain by helping others to invest in stocks. Just liKe in a race horse business, the owner of the horse does not care when the rider wins or loses the race.
The same case applies to stock brokers. Whether an investor gains or losses from the assets, the stock broker, and the government have nothing to worry about since they will already have taken their share. The only added advantage a broker gets when an investor makes a profit is the publicity as the client will spread a word to others that he made money by investing through an individual broker.
Expectations vs. Reality
Many people invest in shares with the hope of attaining a profit if the shares go up. What they do not realiZe is that there is a high chance of the shares falling and therefore making a huge loss. The reality is that investing in shares should not be a short term investment, but a long term where one has to wait for the company he or she bought shares for them stabilize and thus sell at a good value.
Stockbrokers also take advantage of many unknowing clients who are not conversant with stocks and shares and may use the money to buy stock from other firms. The truth is that mostly they have not done enough research or investigated on the stocks, and it is more likely the brokerage house has underwritten the shares. This means, they have paid the company for the shares and therefore will move the risk from their firm to the investor.
Stockbroking appears as a compelling venture in bold investments and as if there are substantial returns. The truth about this is very different. Many startups fail more than they succeed. The ventures are not very good in generating returns. A good case is CMC markets which is a leading online trading company. It has a successful story dating back more than 20 years ago. CMC offers a broad range of products including Forex, commodities and much more.
For those who want to venture into this market, they can use the company since it is well established and has been in the business for long as compared to other upcoming firms. It does not mean they have never had their shortfalls, but they have proven to come up in the worst times of the country’s economy.
For those interested in venturing in stockbroking, think of long term positions in anticipation of upward movements in prices and make a profit. The trick about stockbroking is buying the shares when the prices are low, mostly in IPOs and reselling them later when the prices go high. A word of discouragement is for those who think of a short term position. This is a tricky venture since if you buy short, there is a trend of shares going down a few months or years after purchase and therefore there is no profit. An investor who borrowed money to buy the shares goes at a loss since there is no profit made.
