A brokerage house (firm) is simply a place where investors and traders go for buying and selling stocks. The broker house acts as a middleman between buyers and sellers and provides a trading platform for everyone. It charges a commission on these transactions. Every time an investor buys a stock, a transaction fee is charged.
Earlier, brokerage services were only available at the physical offices of the firms. Nowadays, most transactions are carried out online via websites and apps. This has made trading much easier and more efficient, especially for day traders.
You can also start a share broking franchise business (a sub-broker franchise) and give your company’s franchise to small and medium sub-brokers.
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What Is a Sub Broker Franchise?
A broking franchise gives franchises to smaller brokers in order to expand its clientele and make more money through the sub-brokers. Sub brokers are like freelancers. They work with a certain degree of autonomy but utilize the brand name and software of the sub-broker franchise. The brokerage earned from clients (traders) is shared between the franchise and the sub-broker.
Types of brokerage services
- 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 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 centralized hub and use the telephone and the internet to reach customers.
- The perk here is that brokerage fees are quite low.
- Authorized Person
- An Authorized Person acts on behalf of a brokerage firm as its franchisee. To perform this function, an Authorized Person is registered at the Exchanges (BSE, NSE, MCX, etc.)
- Authorized Persons 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 that 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.
Advantages of using brokerage firms
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:
- The wide array of services
- Brokerage firms provide a large catalog 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 scrutinizes those who have applied for a broker’s license. 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 license or canceling 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.
How to select the best brokerage firm
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 customized 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.