Warrior Trading Blog

Stockbroker Definition: Day Trading Terminology

Stockbroker

A stockbroker is a licensed financial professional who executes securities trades, primarily equities, on behalf of clients for a fee or a commission.

Stockbroker Education

While there are no strict educational requirements for stockbrokers, most stockbrokers tend to have at least a bachelor’s degree in finance or business administration. Stockbrokers are expected to have knowledge concerning economic principles, relevant financial laws and regulations, financial forecasting and wealth management.

Stockbroker Licensing

Stockbrokers in the United States are required to pass the General Securities Representative Exam, or Series 7 exam, to gain the Registered Representative designation. All applicants must already be employed with a brokerage firm in some capacity related to traditional brokerage services.

Origin of Stockbrokers

Prior to the development of electronic trading, investors would need to maintain a relationship with a stockbroker who would make trades in the markets on their behalf. Due to the high cost involved in maintaining these client relationships and executing trades in the markets, only wealthy individual investors and financial institutions had access to the markets through stockbrokers.

However, the development of electronic trading has made the markets accessible to anyone with an Internet connection, and most brokerage services are now conducted electronically.

Stockbrokers in Contemporary Finance

While the proliferation of electronic trading has led to the automation of most brokerage services, there are still financial professionals who act as stockbrokers in contemporary finance.

Some wealthy investors who are not financial professionals themselves still employ the services of stockbrokers.

While these investors may feel that they have adequate knowledge and experience for trading directly in the markets, as opposed to using the services of a wealth manager, they may still feel that they require advice and guidance on some or all of their trades.

For these clients, stockbrokers can offer information on potential trades and their execution that individual investors may not otherwise have access to.

Many of these wealthy individual investors also value the personal client relationship that stockbrokers maintain.

The Future of Brokerage Services

The development of the Internet may have sparked the gradual decline of traditional brokerage services supplied by financial professionals such as stockbrokers, but it is the rapid development of automation and sophisticated trading software that is transforming the landscape of financial services.

Whereas only the wealthiest individuals were once considered worthwhile to represent on even traditional stock exchanges, brokerages now offer a wide range of services to investors with only nominal amounts to invest.

Even retail investors now have access to a broad array of complex and exotic securities, and advanced financial information and analysis, as well as sophisticated analytical tools, are now available for free or for a low cost.

The cost of maintaining financial professionals in brokerage services can rarely be justified in the age of automation and digitization. Most investors prefer to have direct access to the markets through digital trading platforms and to do their own research and analysis on potential trades.

The areas where stockbrokers retain their value is in the maintenance of client relationships and the execution of larger and more complex trades.

Stockbrokers and Trading

Most day traders will find that they rarely, if ever, require the services of a traditional stockbroker.

Day traders are focused on technical analysis or short term events, about which stockbrokers will have little input. In addition, day traders tend to keep their trade size small enough that they have a minimal impact on the market, and many trading platforms now offer advanced order execution systems for splitting up block trades effectively.

Day traders may deal with stockbrokers occasionally when trading in obscure and exotic securities. The markets for these securities may be over-the-counter (OTC), and the brokerage’s trading platform may not have a means for making an order electronically.

Additionally, these securities may have legal and accounting requirements that a traditional stockbroker is well-placed to advise on.

Final Thoughts

The introduction of the Internet sparked the initial decline in the need for traditional stockbroker services, which has increased rapidly with the growing automation and digitization of trading.

However, there is still a role for traditional stockbroker services in the execution of large and complex trades, and in the maintenance of personal client relationships that are still valued by some investors.