What Is a Broker? Definition, Examples and How to Find One - NerdWallet (2024)

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Broker definition

A broker is a person or company authorized to buy and sell stocks or other investments. If you want to buy stocks, you will almost always need a broker — essentially, a middleman — to place those orders on your behalf.

These days, many people open a brokerage account with online brokers rather than working with a person. Often called discount brokers, online brokers are typically less expensive and allow you to buy or sell stocks and other investments directly through their websites or trading platforms. Many online brokers now charge no commission to buy or sell stocks and other investments.

What does a broker do and why do I need one?

To understand what brokers do, it helps to have some quick background about the stock market.

Stocks are traded through market exchanges, like the New York Stock Exchange or the Nasdaq. These exchanges are like a supermarket for stocks: Companies list their stock with an exchange, and the exchange connects buyers and sellers, imposes rules and regulations, and tracks the demand for each stock, which influences the stock’s price.

» Learn more: A beginner’s guide to the stock market

But the average investor can’t just walk into an exchange and pluck a stock off the shelf. Instead, you need a stockbroker, a company or person who is licensed to execute trades with the exchange. Brokers generally must be registered with the U.S. Securities and Exchange Commission.

In some cases, brokers also provide advice on which stocks you should buy and sell. However, brokers should not be confused with financial planners, who tend to offer more holistic guidance on your financial situation.

How does a broker make money?

Brokers are typically compensated through a commission on each trade. Investors have historically paid a broker a commission to buy or sell a stock.

That's still true of human stockbrokers at full-service brokerage firms, but investors who manage their own brokerage accounts and use an online broker to buy and sell investments can now do that commission-free if they choose the correct broker. (We have a list of brokerages that offer free trading here.)

Brokers that do not charge commissions make money off investor assets in other ways — most often by earning interest on uninvested cash in investor accounts. Most investment accounts hold a small amount of cash, and a broker sweeps that cash into a deposit account that earns interest. A small portion of that interest is paid to the investor, and the brokerage firm pockets the rest.

Brokers also sell trades to market makers, which earns them a small fee per trade. Investors rarely notice this, but it can in some cases slow trade execution and increase the cost of the trade slightly. High-volume traders may wish to choose a broker that routes trade orders based on price, such as Interactive Brokers.


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J.P. Morgan Self-Directed Investing

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Get up to $700

when you open and fund a J.P. Morgan Self-Directed Investing account with qualifying new money.

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How much does a stock broker make?

According to Salary.com. as of Feb. 2024, the average salary for a stock broker in the U.S. was $159,462. Stock broker salaries ranged from $120,759 to $186,424.

How do you find a broker?

These days, it’s easy to find a broker. Most investors should opt for an online broker, due to the cost savings and ease of placing online orders.

To find the best online broker for you, look for discount brokers that require a low minimum investment and charge no ongoing account fees. If you’re new to investing, consider choosing an online broker that offers educational resources — many have libraries of how-to content on their websites to help you get started.

Once you choose a broker, you’ll open a brokerage account, which is an investment account. You need a brokerage account to buy or sell stocks and other investments, such as mutual funds. The broker will walk you through the process of opening an account, which takes minutes and is typically completed online. (We also have a full guide to brokerage accounts and how to open one.)

» Ready to get started? See our picks for the best online brokers.

What Is a Broker? Definition, Examples and How to Find One - NerdWallet (2024)


What is a broker example? ›

A broker's prime responsibility is to bring sellers and buyers together, and thus, a broker is the third-person facilitator between a buyer and a seller. An example would be a real estate broker who facilitates the sale of a property. Brokers can furnish market research and market data.

What is the best way to describe a broker? ›

A broker is a person that facilitates transactions between traders, sellers, or buyers. Think of a broker as a middleman who ensures transactions can run smoothly and that each party has the necessary information. Brokers exist in many industries, including insurance, real estate, finance, and trade.

What is a broker for dummies? ›

A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. A broker can also refer to the role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

What is a broker and why do I need one? ›

A broker is a person or company authorized to buy and sell stocks or other investments. If you want to buy stocks, you will almost always need a broker — essentially, a middleman — to place those orders on your behalf.

What is an example of a broker in marketing? ›

Brokers, most commonly found in the food, real estate, and insurance industries, may represent either a buyer or a seller and are paid by the party who hires them. Brokers often can represent several manufacturers of noncompeting products on a commission basis. They do not carry inventory or assume risk.

What are the two most common types of brokers? ›

Brokers come in two general types: full service and discount.

What is the definition of a broker? ›

broker. noun. bro·​ker ˈbrō-kər. : an agent who negotiates contracts of sale (as of real estate or securities) or other agreements (as insurance contracts or mortgages) between the parties for a fee or commission compare dealer, finder.

Which scenario is the best example of a broker? ›

The scenario that best exemplifies a broker is the one where an individual or entity acts as an intermediary between buyers and sellers, often without taking title to the goods or services exchanged, but facilitating the transaction and possibly providing advice.

How does a broker make money? ›

How Does a Brokerage Firm Make Money? Generally, brokerages make money by charging various fees and commissions on transactions they facilitate and services they provide. The online broker who offers free stock trades receives fees for other services, plus fees from the exchanges.

How to get a personal broker? ›

  1. Step 1: Decide How You Will Use Your Brokerage Account. ...
  2. Step 2: Evaluate How the Brokerage Can Help You Reduce Risk. ...
  3. Step 3: Choose the Best Online Brokerage Account. ...
  4. Step 4: Start the Application Process. ...
  5. Step 5: Fund Your Account. ...
  6. Step 6: Simulate Your Trading Before Going Live.

Is a broker an owner? ›

A broker doesn't have to work for a firm, they can own their own brokerage, in which case they'd then be called the broker-owner. In any case, brokers also have to be licensed as a broker in the state where they work, in addition to holding a real estate agent/salesperson license.

Why brokers are good? ›

Brokers are the wholesale lender's valued client. They compete for your business – providing top of the line service to make sure you are a repeat customer. Brokers are a part of their local community, with established relationships with local borrowers, as a trusted partner for your home buying experience.

Why not to use a broker? ›

A Broker May Not Source the Best Deal for You

Many home buyers simply assume that a broker can deliver a better deal than they could get on their own, but this is not always the case. Some lenders may offer home buyers the very same terms and rates that they offer mortgage brokers (sometimes, even better).

Why use a broker instead of a bank? ›

More competitive interest rates and loan terms. Access to more lenders, including non-traditional lenders. Mortgage brokers act as the middle person and negotiate on the borrower's behalf. Access to more loan options, including those that may be tailored to your unique circ*mstances.

What should I know before choosing a broker? ›

How to Choose the Right Brokerage Firm for You
  • Decide what kind of account you want to open. ...
  • Determine your investing priorities. ...
  • Evaluate the broker tools and support you'll need. ...
  • Compare costs and convenience. ...
  • Explore trading platforms at different brokerage firms.
Feb 1, 2024

Who is considered a broker? ›

What is the definition of a broker? A broker is a person or company who works as a go-between for just a client and a stock market. Personal traders and investors utilize the assistance of exchange members since stock markets cannot accept orders from persons or organizations that are members of the exchange.

What is a type of broker? ›

There are four main types of broker – a stock broker, forex broker, full-service broker and discount broker.


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