Stock trading is a venture that provides an opportunity for anyone to increase their financial wealth. If you want to invest in stocks, the first thing you will think of is probably contacting a stock broker. Stock brokers offer many services like trading advice and accounts, but can they execute trades for themselves and you?
Stock brokers are allowed to trade like every other individual. They can open an investment account to buy and sell bonds, stocks, and mutual funds for investment, speculation, or retirement. They are expert traders who execute trades on behalf of their clients; hence they can trade for you as well.
The rest of this article will give a detailed explanation of whether a stock broker can trade for themselves and you, what they do, and the benefits of hiring one.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Can a Stock Broker Trade for Themselves?
Yes, stock brokers are allowed to trade for themselves, but what they cannot do is front-running. Front-running is where a broker purchases a stock and then recommends a client to purchase it. Other than that, they can open an online brokerage account and start executing trades like every other individual. Just like you, they can invest in favored retirement accounts, mutual funds, stocks, and government bonds.
Can a Stock Broker Trade for Me?
Yes, a stock broker can trade for you if you authorize them. You can hire an individual stock broker or a brokerage firm to execute trades on your behalf. There are two types of brokers to choose from: discount and full-service. Discount brokers will execute trades for you but will not offer other services like advice. They do so at a small commission, but there are some online brokers providing premium services at higher fees nowadays.
On the other hand, full-service brokers will offer professional advice, access to market research tools, retirement planning, and other products like ETFs and mutual funds. For these brokers, you will generally need to pay a higher fee and commission for every trade that they execute.
Below is a video on how to pick a stock broker:
What Do Stock Brokers Do?
Stock brokers deal in securities, but some of them also act as sales agents on behalf of brokerage or security trading firms. They have an obligation to obtain and maintain regular investors, and in turn, acquire a referral bonus. Other than that, they also execute trades, provide market advice, and carry out research. Described below are some of the key functions that stock brokers perform day to day.
Execute Trades
Stock brokers have direct clients for whom they buy and sell stocks. Some are professional financial planners and money managers who help their clients with portfolio diversification, shaping their retirement plans, and provide advice on wealth management. They also deal with ETFs, mutual funds, bonds, equities, and retail products for sophisticated clients.
When authorized by clients, stock brokers can develop investment strategies for them and trade on their behalf. Brokers spend a lot of time informing clients on stock price variations and expanding their clientele.
Research
Stock brokers have access to research tools and spend time on their phones and screens, observing and analyzing performance charts. They often research on their own and polish their trading strategies because timing is a crucial factor in making a profit. Stock brokers are proficient at multitasking and have high energy levels; hence they can work in high-pressure environments.
Professional Advisors
Stock brokers have a great deal of knowledge on stock trading and will offer professional advice at a fee. Full-service brokers offer stock market advice, and discount brokers can refer you to an advisor at a fee. If you are new in stock trading, advice from a professional will come in handy to help you invest, grow, maintain, and manage your investments.
Offer Online Brokerage Accounts
Independent brokers and companies offer online brokerage accounts to investors who want to execute their trades directly. There are two kinds; cash and margin accounts. To invest and trade with these accounts, you incur different fees such as minimum deposits, withdrawal, inactivity, and software fees. Equally, they charge a commission for every trade you make, whether you make a profit or loss.
The brokerage accounts come with a range of products and tools to help you research and observe markets to improve your trading skills.
Give Client Recommendations
Stock brokers also work with their clients to understand their financial situation, investment goals, and risk tolerance. A good broker would then research and make recommendations based on his/her client’s needs and select investments that best suit their portfolio. For example, if your portfolio is low-risk, your stock broker will recommend low-risk stocks.
Give Disclosure
Your stock broker should disclose all information regarding any investment recommendations they make, including its advantages, and the risks involved. Equally, they should be honest at all times with their client, and not provide them with exaggerated, false, or misleading information.
Recruit and Handle Customer Service
Independent brokers and those who work for large firms should create their client lists. Stock brokers spend a significant portion of their day on the phone reaching out to potential investors, cultivating long-term relationships with them and other professionals in the industry, and following up on existing clients.
Clients heavily depend on their stock brokers to deal with their investments. As such, they must ensure they maintain security and trust by communicating with clients frequently to give updates on new investment opportunities and their portfolio.
Fair Dealing and Fiduciary Duty
There is usually a risk of conflict between the interest of a stock broker and that of his/her client. This is because brokers get a commission for every trade; that’s how they earn their living.
However, the stock broker has a fiduciary duty to put the client’s needs above his. He/she is also subject to rules created by various regulatory agencies like the Financial Industry Regulatory Authority. They require stock brokers to trade fair and maintain integrity.
Benefits of Hiring a Stock Broker
Whether you are a seasoned or new investor in the stock market, support from a stock broker is beneficial in the following ways:
- Convenience – Brokers offer convenience in that they can handle your administrative paperwork and keep your records instead of you having to do it. They also act as middlemen between your money and investment, particularly when you authorize them to execute your trades.
- Variety of opportunities – Stock brokers have access to many stocks from different companies that you would otherwise miss out on when trading yourself. They also have access to research tools and products that will boost your investment skills.
- Education – Stock brokers have a lot of experience in stock market trading. They can educate you on the market’s ins and outs and provide investment strategies that will boost your success.
- Portfolio management – A stock broker will manage your investment portfolio and educate you on your initial investments, losses, profits, and past stock trade records. They are also knowledgeable about rules and regulations regarding governmental bodies that impose them and directly affect your investment.
- Offer financial advice – Stock brokers are professional stock market financial advisors and, in this sense, will provide insight into market complexities. They will also unveil particular disadvantages, advantages, rewards, and risks about your financial investment utility.
- Focus on financial objectives – As an investor, you are the stock broker’s client, and, thus, the broker will focus on your financial goals so that you can turn in a profit. They do so by studying the market and by making recommendations on suitable stocks and trades.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
- Best Passive Investment Platform For Exponential (Potentially) Returns: By enabling passive investments into a Bitcoin ETF, Acorns gives you the best opportunity to make exponential returns on your passive investments. Plus, Acorns is currently offering a $15 bonus for simply singing up to their platform – so that is one opportunity you don’t want to miss! (assuming you are interested in this platform). Click Here To Get $15 Bonus By Signing Up For Acorns Today! (It will take you less than 5 mins to sign up, and it is totally worth it.)
Conclusion
Stock brokers can trade for themselves and can execute trades for you. However, they should only trade for you after you have authorized them to do so, and they should execute trades in your best interest to guarantee profits. Additionally, when trading for themselves, stock brokers must not engage in front-running. This is the act of recommending clients to buy their stocks.
Hiring a stock broker has its perks; they offer convenience, financial advice, education, portfolio management, and several other services. They also have to act in your best interest by recommending stocks that suit your portfolio, maintain communication regarding your investments, and put your needs before their own.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
Affiliate Disclosure: We participate in several affiliate programs and may be compensated if you make a purchase using our referral link, at no additional cost to you. You can, however, trust the integrity of our recommendation. Affiliate programs exist even for products that we are not recommending. We only choose to recommend you the products that we actually believe in.
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