In the business world the value of stocks are ever varying, making stockbroking very lucrative but also very risky. Simply put, stockbroking is the service of buying and selling stocks and shares in the market either by an individual or a firm. The aim of stockbroking is to sell the shares at their highest prices and buy them at their lowest but with promise of gaining value. Currently stock brokering is being carried out electronically and is sometimes referred to as E-trading, involving trading of securities such as stocks, foreign exchange or financial underlying such as assets.
Therefore, an individual requires both the knowhow of the rising and falling of the stock markets and to always be up to date with the financial health of various company shares. The profession of a stockbroker can even apply to an individual with money to invest but who lacks the business knowledge or has a very demanding schedule, as they are able to seek out a proper stockbroker to assist in navigating the treacherous waters of the stock market.
Due to technology and the large number of people exploring stockbroking, firms have been established to undertake trades on behalf on the clients for a fee both over the counter and in virtual markets.
An example of such a trading platform is CMC Markets, who are regulated by the Financial Conduct Authority. The services provided by a stockbroker include: Execution Only (the stockbroker doesn’t offer advice but undertakes trades on behalf of his or her client), advisory (the stockbroker offers advice on trade areas but only undertakes the trades the client has approved) and discretionary (the stockbroker trades on the client’s behalf without any consultation).
The involvement of the stockbroker will depend on the needs of his or her client. Considering the high dependence on the stockbroker, the firm or individual should be chosen with care and should be registered with the right institutions. The legitimacy can be checked from specific databases from either government or union based sources. Some brokerage firms offer both Contract For Differences (CFD) and share trading and even credit services or collateral.
The obligations of the brokerage firm or stockbroker include researching the markets for the best trade offers in order to give profound, latest and accurate information that should include stock prices and quotes, and offering the client margin loans (collateral for credit services which can be the cash deposited in the account) so that the client is able to do more share trading.
There are various types of stock trades which are market orders, limit orders and stop orders.
The market order is at times referred to as the standard order and is the most common. It is an order for a number of shares to purchased or sold at the best price possible.
The ask price is the amount that is paid while buying, the bid price is the amount that is received after selling and the difference of the two prices is known as the spread. For stocks that are traded frequently the ask price is usually higher than the bid price hence the spread is usually narrower.
Limit orders enable the client to state the price at which s/he will sell or buy a specified amount of shares which assures the client of getting the price s/he desires for example a client may want to sell 50 shares at £17.The disadvantage is that the specifics quoted may not be achieved within the trading period hence the order expires.
Lastly, stop orders which is common and is at times referred to as a stop loss order. There are two types: a buy stop order and a stop sell order. A stop sell order is placed under the current market price and when the price of the stock hits that mark then the order turns into a market order and is filled obviously with the highest prices. A buy stop order is used in higher levels of investment and is placed above the current market price.
The stockbroking industry is very profitable but requires caution in its exploiting. The right trading platforms should be used so as to gain the most from the trades which is done through proper research of brokerage firms.
Featured image courtesy of Flickr | Andreas Poike