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What is Brokerage?

It is practically impossible to have EVERY trader on the trading pits of trading floor of a stock exchange or commodity exchange, actively trading on the financial asset. Can you imagine the level of confusion that would occur if you had everyone hollering around in an open outcry system?

In the same vein, there are traders who would want to play several markets at the same time. It is not uncommon to see traders who trade stocks and at the same time, hold positions in gold or crude oil. In such a situation, it is impossible for such a trader to split himself into two parts and be in each market in person simultaneously.

In addition, the fact that not every trader or investor in the market trades an instrument as a sole source of income needs to be considered. Many have day jobs and use investment in stocks, commodities, bonds or derivatives as a second income stream.

Finally, there is the issue of ensuring integrity of trades, standardization of instruments, prevention of market infractions, and other such security issues.

The reasons proffered above are some of the main reasons why the business of offering brokerage services to traders evolved and came on stream. If you want to trade, you have to do it through a broker who would normally be a dealing member of an exchange. Brokerages differ in the kind of services they offer clients. What are the different types of brokerage services or accounts available for traders to use?

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