Discover the Role and Importance of a Broker

Learn all about what a broker does, how they operate in financial and real estate markets, the types of brokers, their compensation, and regulatory standards.

What Is a Broker?

A broker is an individual or firm that serves as an intermediary between an investor and a securities exchange, or between parties in a real estate transaction. Securities exchanges only accept orders from members, making brokers essential for individual traders and investors. Brokers are compensated through commissions, fees, or payments from the exchange itself.

Key Points

  • Intermediary Role: Brokers act as connecting agents between investors and securities exchanges or real estate buyers and sellers.
  • Compensation Models: They earn through commissions, fees, or direct exchange payouts.
  • Types of Brokers: Includes discount brokers who offer trade execution without advice, and full-service brokers offering comprehensive advisory and investment services.
  • Regulatory Bodies: Financial brokers register with the Financial Industry Regulatory Authority (FINRA), while investment advisers register with the SEC.

Understanding Brokers

Beyond executing orders, brokers may offer market research, tailored investment plans, and various financial products. Historically, only the wealthy could afford brokers, but online platforms have democratized access, making discount brokers popular for their cost-effectiveness.

Types of Brokers

Discount Brokers

These brokers execute trades on behalf of clients with minimal or no commissions, relying on volume to drive profits. They commonly offer online trading platforms without providing personalized advice.

Full-Service Brokers

Offering a range of services including market research, investment advice, and retirement planning, full-service brokers are costlier due to their comprehensive features. They’re compensated based on trading volume and investment product sales.

Real Estate Brokers

In real estate, brokers help facilitate property transactions:

  • For Sellers: Assess market value, list properties, and manage offers and negotiations.
  • For Buyers: Identify properties, manage offers, and handle negotiations and inspections.

Broker Regulation

Financial brokers must comply with FINRA guidelines, adhering to suitability rules, which ensure recommendations align with client profiles and goals. In contrast, investment advisers registered with the SEC follow fiduciary standards, always acting in the client’s best interest. Real estate brokers are state-licensed, adhering to state-specific regulations.

Examples of Brokers

Full-service brokers at firms like Morgan Stanley and Goldman Sachs might handle high-net-worth clients’ comprehensive financial needs. Discount brokers cater to self-directed investors, usually online.

Example Scenario: A high-net-worth investor, Amy, instructs her broker to purchase 10,000 shares of Tesla (TSLA). The broker can execute the trade directly from existing inventory or acquire shares in batches from the exchange, ensuring efficient trade execution.

Practical Insights

What Exactly Does a Broker Do?

A broker facilitates trades between investors and exchanges. They can be specialized in securities, real estate, or other markets. Stock trades today are often computerized, with brokers providing human oversight for large or complex transactions.

Do Brokers Make Money?

Brokers typically earn via salaries and commissions, with an average annual income around $160,450 as of April 2024. Success depends on the clients and the broker’s role in high-stake commercial deals or day-to-day stock trades.

Why You Need a Broker

A broker’s expertise and market access ease trading complexities. Stock exchanges mandate licensed brokers to execute trades, ensuring proper handling of all transactions, whether executed online or via full-service brokers.

Paths to Becoming a Broker

Aspiring brokers often benefit from backgrounds in finance or economics. They must also acquire necessary licenses to legally perform trades and interact with clients.


Brokers play pivotal roles in financial and real estate transactions, offering various services based on their specialization. Their expertise ensures clients can navigate market complexities, from simple trades to extensive financial planning.

Related Terms: Investment Adviser, Stock Market, Real Estate Agent, Financial Advisor, Commission.


  1. Securities and Exchange Commission. “Brokers”.
  2. Legal Information Institute. “Real Estate Broker”.
  3. “Stock Broker”.
  4. U.S. Bureau of Labor Statistics. “National Occupation Employment and Wage Estimates”.

Get ready to put your knowledge to the test with this intriguing quiz!

--- primaryColor: 'rgb(121, 82, 179)' secondaryColor: '#DDDDDD' textColor: black shuffle_questions: true --- ## What is the primary role of a broker in financial markets? - [ ] Providing legal advice - [x] Facilitating transactions between buyers and sellers - [ ] Offering banking services - [ ] Conducting audits for companies ## What is a full-service broker? - [ ] A broker that only provides online trading platforms - [ ] A broker that only buys and sells commodities - [ ] A broker with no advisory services - [x] A broker that provides a range of services including research and advice ## Which of the following is an example of a discount broker? - [ ] Merrill Lynch - [ ] J.P. Morgan - [x] TD Ameritrade - [ ] Morgan Stanley ## How do brokers primarily make money? - [ ] Charging high annual subscription fees - [x] Charging commissions or fees for executing transactions - [ ] Investing client money in high-risk assets - [ ] Receiving government grants ## What is a brokerage account? - [x] An account that allows individuals to buy, sell, and hold various investments - [ ] An account used for storing savings only - [ ] An account used for receiving payroll deposits - [ ] An account exclusive to corporate buyers ## Which regulatory body oversees brokers in the United States? - [ ] Federal Reserve - [ ] Commodity Futures Trading Commission (CFTC) - [x] Financial Industry Regulatory Authority (FINRA) - [ ] International Monetary Fund (IMF) ## What is a robo-advisor in the context of brokerage services? - [ ] A human financial advisor who works for a broker - [ ] Software that predicts stock prices using technical analysis - [x] An automated platform providing financial advice based on algorithms - [ ] A broker that specializes in buying and selling robots ## Which type of broker does not provide any research or advisory services? - [ ] Full-service broker - [x] Discount broker - [ ] Real estate broker - [ ] Mortgage broker ## When would an investor typically contact their broker? - [ ] When they need legal representation - [x] When they want to buy or sell securities - [ ] When they need to file a tax return - [ ] When they are applying for a mortgage loan ## What is margin trading in relation to a brokerage account? - [ ] Trading without any investment at all - [ ] Trading directly with the stock exchange - [x] Borrowing funds from the broker to purchase securities - [ ] Buying and selling international currencies