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What Are Brokerage Firms ?

Brokerage firms act as a liaison between their clients and the stock exchange. Their primary function is to buy and sell financial products, including stocks, on behalf of their clients.
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  • 03 Feb 2023
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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.

Full-service brokerage firms

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.

Discount brokerage firms

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:

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

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

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

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

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

  • 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.

  • 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.

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