What is Stockbroking – The Simplest Explanation Ever

During FY-2022, the stockbroking industry generated around 28,000 Crore rupees as a topline growth. And with time the industry is evolving and setting new records for the future.

The big names in the stock market like Zerodha, Upstox, Groww, etc., are an inseparable part of the stockbroking industry. But, did you know what is stockbroking?

Do you wonder when terms like stockbroking, broking, brokers, and stockbrokers come in front of your eyes?

Don’t worry! Most investors or traders go through this phase. And I am more than happy that you chose me to help you out.

By the end of this article, you will have the answers to all the questions like what is a stockbroker? what does a stockbroker do? Are stockbrokers and brokers different?

But let’s start with the most asked question: What is Stockbroking?

What is Stockbroking

Stockbroking is the profession of a stockbroker where they provide the service of executing orders – i.e. selling and buying shares – on behalf of their clients who are generally retail and institutional investors.

Let’s break it down.

You don’t go to BSE or NSE to buy/sell shares; you do that using your phone with the help of some applications like Zerodha, Upstox, or Groww. These are your stockbrokers and they buy and sell shares on behalf of their client i.e. YOU.

Like teachers do teaching, in the same way, stockbrokers do stockbroking.

And, is there any difference between stockbroking and broking? The answer is NO. Stockbroking and broking, both terms are the same.

But we also know that Every service demands something in return. So, what do the stockbrokers ask for in return from their clients?

Brokerage Fee

The broking services which the stockbroker is providing you aren’t free, the broker levies a fee or commission on every trade you do and it is known as a brokerage fee.

This commission could be a flat fee or percentage of the value of the transaction.

From a flat fee, I mean stockbrokers can ask for Rs 20 per every trade, while a percentage-based fee can be something like 0.03% of every transaction you do.

You have an idea of what a stockbroker is, but let’s discuss it a bit deeper so that you don’t have any questions left.

What is a Stockbroker

A stockbroker is a financial professional who acts as an intermediary between the stock market and the investor.

Although there is a difference between stock and share but people use both these terms interchangeably.
And you need to know that whenever you face this question, "what is a share broker?" your answer should be that a share broker is none other than a stockbroker, as both have the same meaning.

People do not use the term “stockbroker” very much, instead of using it they usually say “broker”.

Stockbrokers are generally associated with a stockbroking firm, but they can also be independent people.

For instance, whenever you would ask someone that “who is your broker?” they would probably answer “Zerodha, Upstox, Sharekhan, or Motilal Oswal,” which are the broking firms as people generally call these stockbroking firms as their brokers which isn’t wrong anyway but the individuals who’re working for these broking firms are also the brokers.

We only use broking apps to trade shares, but is this the only service they provide? So, What does a stockbroker do?

Services provided by brokers

  • Broking services
  • Investment advisory
  • Portfolio management
  • Mutual funds services

Types of stockbrokers

There are 2 types of brokers: Full-service brokers and Discount brokers.

Both types of brokers provide brokerage services but they’re different from each other in terms of additional services and facilities provided by them in the first place.

1. Full-service brokers

As the name suggests they provide all of the services which we’ve discussed above. Apart from the broking services, this type of stockbroker provides you with investment advisory, stock research facility, portfolio management, retirement planning, and other such facilities.

They can provide you with all these services because they possess in-depth knowledge regarding the stock market as they attained this position after rigorous training and examinations.

And as they’re providing additional services other than brokerage they charge high fees from the investors.

From the time broking started, there were only full-service brokers in the market before the discount brokers came into the picture and this is the reason why full-service brokers are also known as “Traditional brokers”.

Full-service brokers in the Indian stock market are ICICIdirect, Kotak Securities, HDFC Securities, Motilal Oswal, etc.

2. Discount brokers

As the technology grew “online stockbrokers” start gaining control in the band of broking and the present scenario is that Zerodha and upstox-like online brokers are ruling the Indian stock market.

These “online stockbrokers” are also known as “Discount brokers”.

There are reasons why the aforesaid names are the largest stockbrokers of India:

  • They levy fewer fees or commissions on the trades done by the investors.
  • They also provide convenience to the investors in terms of time and place utility.

But, it is also the fact that they do not provide you with additional services like full-service brokers.

Examples of discount brokers in India are Zerodha, Upstox, Groww, Angel One (previously Angel broking), etc.

Difference between full-service broker and discount broker

Full-service Brokers

Discount Brokers

Stockbrokers who provide you extra services besides broking services

Stockbrokers who provide you only broking services

Also known as 'Traditional Brokers'

Also known as 'Online Brokers'

Charge high-fees in return of their services

Charge less fee than full-service brokers

Have in-depth knowledge about the stock market as they provide investment advisory

In comparison to full-service brokers, discount brokers don't do that level of research because they don't provide any consultation services

Ideal for the investors who require personalized services and has a large volume of investments

Ideal for novice investors and also for those who can't afford high charges

Examples: ICICI Direct, Kotak Securities, etc.

Examples: Zerodha, Upstox, etc.

Subtypes of broker

There are 2 other subtypes of stockbrokers who operate in the stock market:

1. Jobber

Jobbers aren’t licensed to trade in someone else’s name and cannot levy fees on others. They trade securities for their own sake and not on behalf of others.

They quote 2 prices on stocks: Buy price quote and Sale price quote. And whatever the difference between these two prices is their profit margin.

2. Arbitrageur

Did you hear about arbitrage? It is the act of buying a security on one stock exchange and simultaneously selling that security on the other exchange and gaining the profit as a price difference.

This subset of stockbrokers, arbitrageurs, do the same. Buy low on the first exchange and sell high on the other exchange.

Who is a sub-broker

  • A sub-broker is a person or agent who is appointed by brokers to act on their behalf.
  • A sub-broker is not a member of the stock exchange.
  •  Sub brokers need to register with SEBI without which they do not have permission to deal in securities.

Why do we need stockbrokers?

Stocks are traded through exchanges but the investors need someone to sell or buy shares of the company on their behalf because stock exchanges have strict rules and regulations on who can trade shares directly that’s why most individual investors need a stockbroker to trade stocks.

How stockbrokers are regulated in India

Stockbrokers are regulated under SEBI’s rules and regulations which are every stockbroker in India needs to be a member of stock exchanges and also requires to be registered with SEBI.

Stockbrokers display their registration details on their websites and even on official documents.

Frequently Asked Questions (FAQs) about What is Stockbroking

Conclusion

Stocks are traded on stock exchanges but you trade them via brokers. The demat account and trading account which you create before entering into the stock market, you need a stockbroker for that. And the service a stockbroker provides is called stockbroking or simply broking.

Besides broking services if you want investment advice and want to manage your portfolio by your broker, you can go with full-services brokers but be ready for the high brokerage fee.

But if you are the type of investor or trader who does not need advisory and other facilities you can choose discount brokers which will keep you happy by charging less commission on each trade you would do.

I hope now you are cleared with your question: what is stockbroking? We have also discussed relevant terms regarding stockbroking. But still, if you have some doubt, don’t hesitate to comment your question. Other fingossipers and I are always ready to ease your stock market journey.

Till then, Happy learning!

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