As investors we are not able to deal with the market directly. It would be like entering and trying to find our way through an unending maze. The markets on their part, are too large, to attend to every single investor directly. This would be a Herculean task and a management nightmare for it. So, the markets introduce and authorize the middleman to act on its behalf. This middleman is also called the “Broker”.
To reinforce this point, consider the following:
1. We want an insurance policy, we would deal with the insurance company's agent.
2. We want to buy a car or motor cycle or scooter, we would deal with the dealer of the automobile manufacturer.
3. We want to buy a pair of trousers or shirt or a dress, we would go to the retail store which sells these products. The retail store would be the representatives of various fashion brands.
4. We want to buy the shares of a company traded in the NSE or BSE. We would have to deal with the many stock brokers of these exchanges.
Agents, dealers, representatives and brokers mean the same thing, and they perform the same function. Which is that of a middleman. They do this function as they would be receiving commissions in return for the services they provide.
For instance, whether an investor buys or sells a stock in the stock exchange the middleman or broker would receive a commission either ways. Which is a percentage of the value traded by the investor. The same (that is, the broker's commission or charges and fees) would also be applicable to transactions the investors may undertake in the futures and options segment of the stock market as well as ETFs (or equity traded funds).
For investors it is very important to choose a broker correctly. Also that the broker is able to provide the services that the investor requires.
In this selection of a broker, the investor would be well advised to consider the following:
1. Is the brokerage well established and known in the market?
2. Is the representative of the brokerage house able to attend to him or is he overloaded with too many accounts?
3. Does the brokerage have a research department. How many qualified professionals do they have on their staff?
There are many other questions, which may be asked and answered. The main aim here is whether the broker we are proposing to deal with, meets all our requirements or not.
In more recent years, this brokerage function of the stock markets as well as other financial markets has been engaged by the leading banks through their brokerage subsidiaries. This has indeed brought all market services (including the trading platform and advisory services) and back office support to the retail investors at very cost effective fees and charges. Some of the banks and their subsidiaries would be the SBI, HDFC Bank, Kotak Mahindra Bank, ICICI Bank, amongst other leading banks.
Ideally, an investor may contact these banks with regard to stock market services (including the trading platform, advisory services and brokerage function) required by them. Similar questions as listed above would again be asked to enable the selection of the best fit bank and its subsidiary for the efficient management of an investor's financial resources (including the investment capital he or she may have available for the task of investment and its management).