What Are Brokerage Firms?

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  • 03 Feb 2023

Brokers pool resources to help their clients negotiate how things work in the stock market. These firms perform some important functions:

  • They facilitate transactions in the stock market by connecting buyers and sellers of financial securities.

  • They often take care of the paperwork that goes into making the trades for a client legally sound.

In exchange for their services, brokerage firms generally charge a commission on each trade they carry out. This commission is called a brokerage fee. It is usually a percentage of the value of each transaction executed by the firm.

Brokerage refers to the process of buying and selling securities such as stocks, bonds, and mutual funds. A brokerage firm acts as an intermediary between buyers and sellers in financial markets. The firm facilitates stock trades by providing a platform for investors to buy and sell securities while charging a commission fee for their services. Brokerage firms also offer research and analysis tools to their clients to help them make informed investment decisions. Overall, brokerage plays a crucial role in the functioning of financial markets by connecting investors with securities that meet their investment goals. With the help of brokerage firms, investors can access a wide range of investment opportunities and make informed decisions about their financial future.

When choosing a brokerage firm, it's important you ask yourself: What is a brokerage firm? The brokerage firm definition is very straightforward. A brokerage firm is a financial institution that facilitates the buying and selling of financial securities between a buyer and a seller. Brokerage firms act as intermediaries, matching buyers and sellers and charging a commission for their services. Some firms also offer additional services such as investment advice and portfolio management.

One of the most important factors to consider is the range of services that they offer. Depending on your investment goals, you may need access to a variety of investment products, such as stocks, bonds, ETFs, and mutual funds. A good brokerage firm should provide you with a diverse selection of investment options that meet your needs.

Another key factor to consider when choosing a brokerage firm is the level of investment advice and guidance that they offer. The right brokerage firm should have experienced financial advisors who can help you navigate the complexities of investing and make informed decisions about your portfolio. In addition, it's important to consider the trading platform that the brokerage firm offers. A good trading platform should be user-friendly, reliable, and offer a range of tools and resources to help you make informed trades.

When evaluating a brokerage firm, it's also important to consider the fees that they charge. Depending on the firm, you may be charged fees for account maintenance, trades, and other services. It's important to carefully review the fee schedule and understand exactly what you'll be paying for. By carefully considering these factors, you can choose a brokerage firm that meets your needs and helps you achieve your investment objectives.

Full-service brokerage firms offer a wide variety of services:

  • They help clients to buy and sell financial securities on the stock exchange.

  • They offer access to a wide range of asset classes. This includes not only stocks but also bonds, forex, commodities, and other derivatives.

  • They offer a suite of research and advisory services. Typically, they have a full-fledged research and analytical team.

  • They maintain physical offices and branches that clients can visit.

  • Because of the array of services on offer, the commissions are relatively high.

A discount brokerage firm is the bare-bones version of a full-service broker.

  • They do not maintain many physical offices. They run operations from a centralised hub, and use the telephone and the internet to reach customers.

  • The perk here is that brokerage fees are quite low.

Authorized Person

A Authorized Person acts on behalf of a brokerage firm as its franchisee. To perform this function,Authorized Person is registered at the Exchanges (BSE, NSE, MCX etc.)

  • Authorized Person funnel business from customers to the larger entity.

  • They cannot execute trades on their own.

  • They have at their disposal the research materials and investment proposals of the brokerage firm they represent.


Robo-advisers are software products which help customers manage their portfolios without the need to get advice from a broker. Here’s how they work:

  • They build a financial portfolio based on the client’s investment goals.

  • They can rebalance a portfolio automatically as and when required.

  • They provide financial services at affordable rates.

  • To get the best results, customers must share details of their income, taxes, and other financial information with the software.

Once a customer signs up with a brokerage firm, they have to open three types of accounts:

  • Bank account: This is necessary for transferring funds to and from your trading account when buying and selling securities.

  • Demat account: It stores all your shares in electronic form.

  • Trading account: This is used to place orders to buy or sell financial securities.

Some customers may already have a bank account or a demat account. So, their next step should be to link all the accounts. This is necessary for starting to trade or invest in the stock market.

Now, let’s consider how stock market transactions could play out via these three accounts:

  • When You Wish To Buy Securities:

The first step is to transfer the required funds from your linked bank account to the trading account. When executing the order, the Broker will use the margin in your trading account to purchase securities. Following successful execution of your buy order, the shares will be credited to your demat account.

  • When You Wish To Sell Securities:

Once you have placed the sell order, the broker will take the shares from your demat account to sell on the exchange. If the order is executed successfully, the shares will be removed from your demat account and the sale proceeds will be credited to your trading account. You can then transfer the proceeds back to your bank account.

To ensure a more seamless trading and investment experience, brokerage firms nowadays offer bundled products. For instance, something like the 3-in-1 service from a reliable broker like Kotak Securities provides a bank account, a demat account, and a trading account in a single, hassle-free package.

You do not need a broker to buy stocks from a company. It is possible to buy stocks directly from the issuing company. But there are advantages to using the services of a broker. Let’s explore some of these:

  • Wide Array Of Services:

Brokerage firms provide a large catalogue of financial services to their clients. Take a look at the key offerings:

  1. Market Insights And Alerts: Full-service brokers send timely information and valuable tips on stock price movements. This could help you to make better investment decisions.

  2. Support With Regulatory Requirements: Brokers help you to meet the regulatory formalities by filing mandatory documents.

  3. Record-keeping: As a broker maintains records of all transactions, you can easily look up a trade executed on an earlier date.

  4. Value-added Services: Full-service brokers offer additional services such as asset management and portfolio management.

  • Regulatory Safeguards For Investors

SEBI regulates the stockbroking environment in India. The market regulator closely scrutinises those who have applied for a broker’s licence. It also keeps a close watch on those who are operating brokerages. The main aim of SEBI is to protect the interest of investors. This is why it carries out rigorous monitoring before granting a brokerage licence or cancelling one.

  • Benefit Of Technology

Brokerage firms nowadays rely heavily on technology to gain new customers and retain existing clients. Here are some of the ways in which technology eases the stock trading and investment experience:

  1. You can open trading and demat accounts online. Even the Know Your Customer (KYC) formalities can be completed through online channels.

  2. Brokerage firms give advice, execute trades, carry out research, and maintain regulatory compliance through an array of tech-based solutions.

  3. They can carry out these actions only if they have IA, PMS and other such licenses as provided by SEBI.

  4. Brokers have also embraced apps as most clients now prefer to use their smartphones to make transactions on the go.

  5. Managing your portfolio is simpler thanks to multiple trading platforms for your computer, smartphone, and tablet.

  6. Algorithm trading is one way that brokers stay ahead of the curve. By using high-frequency algorithms, brokerage firms can make split-second decisions in a market that moves every second.

  7. Investors and traders benefit from timely notifications regarding pending orders and real-time alerts on market events.

It is always advisable to choose a reliable and reputed brokerage firm through which you can invest your money. But there are hundreds of such firms in India. How do you make a selection? Consider these essential factors while choosing your brokerage firm:

  1. Reviews: User reviews are among the best ways to learn about a broker. You can learn from the experience of other people who have already dealt with the firm. Look at both the positive and negative comments, and make sure that the reviews are real. Look also for reviews and rankings on reputed financial newspapers and websites.

  2. Authenticity: Before choosing a firm, check whether it is registered with SEBI. What should you look for? The firm’s website should have a member code for National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or Multi Commodity Exchange (MCX), for example.

  3. Reputation: Always go for brokerage houses with a strong reputation. Remember that market reputation is not built in a day. So, reputed brokerages will have a long line of satisfied clients.

  4. Brokerage Charges: If you are new to the market, the best way forward is to go for a full-service brokerage. If you are a seasoned trader, you could opt for a discount brokerage. Compare the fees charged by the different brokerage services. Pick the one that best fits your needs and is affordable.

  5. Easy-to-Use Online Trading Platforms: Online trading platforms offer real-time access to the user. You can trade from anywhere and at any time. These platforms offer a wide range of trading tools, such as live-streaming of market data, price charts, and more. So, as you shop around for a brokerage firm, compare the trading platforms on offer too.

  6. Customer Services: Ideally, your brokerage firm should provide customer service across formats like phone, email, and customised chat interfaces. They should be able to resolve any problem within the lowest turnaround time.

  7. No Hidden Costs: Some brokerage houses might levy hidden charges after executing a trade. So, get a clear picture of the fees and charges from the start. Hold a detailed discussion with the brokerage representatives. Ask them for a list of all charges before you open an account.

Last But Not Least

Finding the perfect brokerage firm is not easy. The staggering number of brokerage firms in India can be confusing if you are new to the stock market. But it helps to identify your needs and recognise your investment patterns. This will help you to find the perfect brokerage partner to take care of your trading activities. With the right broker by your side, you would be better equipped to increase your wealth and achieve your financial goals.

Currently Trending Topic : Muhurat Trading 2023

Brokerage Firm FAQs

A brokerage firm acts as an intermediary between buyers and sellers in financial markets. They help investors buy and sell stocks, bonds, and other securities by providing access to market data, trade execution platforms, and investment advice. In exchange for their services, brokerage firms charge a commission or fees on each transaction. Some brokerage firms also offer additional services such as financial planning and wealth management.

Brokerage firms primarily make money through commissions and fees on trades made by their clients. They may also earn interest on cash held in client accounts, as well as fees for additional services such as investment advice or research.

Brokerage refers to the job of a broker, who acts as an intermediary between buyers and sellers of financial securities or assets. They earn a commission or fee for facilitating trades or transactions.

A brokerage firm facilitates buying and selling of securities (stocks, bonds, mutual funds) on behalf of their clients. They provide access to financial markets and offer investment advice and research to help clients make informed decisions.

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