Like any other market, the stock market has mediators who facilitate trading and investing in stocks. In stock market terms, these are ‘brokers’ and ‘franchisees’. But who are they exactly and how do they help in the stock market?
A broker is an individual or a firm authorised to buy and sell stocks on behalf of a trader or investor. A broker is registered with the Securities and Exchange Board of India (SEBI) and stock exchange. The broker offers this service in exchange for a fee, known as the brokerage fee.
A sound understanding of the financial markets is necessary to be a stock broker. A broker engages into research, building technology platforms to ensure that clients take informed decisions and conduct trade in a smarter way.
A franchisee is a business associate of a broker. The franchisee’s duty is to offer services of the broker to his clients. The franchisee interacts with the client on a one-to-one basis. For providing the service, the franchisee receives a part of the brokerage amount as commission.
Despite certain similarities, a broker is a different entity from a franchisee. These differences are as follows:
A broker directly trades in the stock market. The brokerage firm buys or sells stocks. A franchisee only does so through the broker. The franchisee passes the client’s orders of buy/sell to the broker, who then executes it.
A broker has a large pool of research and resources at its disposal. A broker is an established firm. Reputed brokerage firms like Kotak Securities share their research and resources with their franchisees. They offer regular workshops and orientation programmes to help franchisees serve their clients better.
The brokerage is a fee the broker earns for rendering its services. The franchisee earns a commission. The commission is a percentage of the brokerage.
Both the broker and the franchisee help clients with investing in the stock market. The main difference between a broker and a sub broker (franchisee) lies in their working capacities. A franchisee works as a link between the broker and the client. The broker facilitates execution of the buy/seller order of the client. Both the franchisee and the broker thus play important roles in the financial world of share trading.
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