Posted in Finance, Accounting and Economics Terms, Total Reads: 299
Definition: Brokerage Company
Brokerage company or simply known as brokerage is a financial institution whose primary source of income is through brokering (enabling) deals involving buying and selling of securities between buyers and sellers. A brokerage earns money through commissions by charging customers who want to buy or sell in financial, commodities or currency market.
Brokerage firms generally deal with two types of accounts which are advisory accounts or discretionary accounts.
There are basically 6 types of brokerage companies which are captive, independent, full service, discount service, deep discount and online discount brokerage firms.
• Captive Brokerage Firm: - Captive brokerage firms are relevant in mutual fund purchases. Captive firms own a part of mutual fund company hence they are inclined to sell their own funds rather than any other company’s funds.
• Independent Brokerage: - These are individual brokers who are forthcoming in their advice regarding what to buy or sell. They are also called personal brokers.
• Full Service Brokerage: - They provide all the necessary tools and services so that investors can make an informed decision on which securities to invest in. They also provide professional advice and do research on market conditions and various securities and share those with the investors.
• Discount Service Brokerage: - These firms only deal with the trading aspect of securities and managing investments and hence their costs are 50% or lower than full service firms.
• Deep Discount Brokerage: - They are even less costly than discount service brokerage because they deal with specialised aspects of investing such as trading in only stocks or commodities etc.
• Online Discount Brokerage: - As the name suggests they work online and are like deep discount firms except their resources and support are available for online trading only.