What is a broker?
A broker is a person or firm that acts as an intermediary between a buyer and a seller in a financial transaction.
In financial markets, brokers help individuals and institutions buy or sell assets such as stocks, bonds, currencies, or precious metals.
In simple terms, a broker means a middleman who connects traders or investors to the market and executes trades on their behalf.
Most investors cannot trade directly on exchanges, so they must use a broker to access the market.
Brokers usually earn money by charging a fee, commission, or spread for each transaction.
How brokers work
Brokers play a key role in ensuring trades are executed smoothly.
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They provide access to financial markets
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They execute buy and sell orders
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They connect buyers and sellers
When you place a trade:
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Your broker sends the order to the market
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The trade is matched with another party
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The transaction is completed and recorded
Some brokers also offer:
This allows traders to make informed decisions and manage their investments more effectively.
Types of brokers
Brokers can be classified based on the services they provide and the markets they operate in.
Common types include:
1. Stock broker
A stock broker helps investors buy and sell shares and other securities on stock exchanges. They provide access to markets such as the London Stock Exchange or the New York Stock Exchange, where individuals cannot trade directly.
Stock brokers may offer additional services such as:
Some investors rely on stock brokers for advice, while others use them purely for trade execution.
2. Forex broker
A forex broker enables traders to buy and sell currencies in the foreign exchange market. They provide access to currency pairs such as EUR/USD or GBP/USD and offer real-time pricing.
Forex brokers typically offer:
They play a key role in allowing retail traders to participate in a market that is otherwise dominated by large financial institutions.
Learn how to choose a forex broker in this guide.
3. CFD broker
A CFD broker allows traders to speculate on the price movements of financial instruments without owning the underlying asset.
CFDs can be traded on:
CFD brokers provide features such as leverage and the ability to go long or short, making them popular among active traders. However, these products carry a higher risk due to leverage.
4. Full-service broker
A full-service broker provides a comprehensive range of financial services beyond trade execution.
These services may include:
Full-service brokers are often used by investors who prefer professional guidance, but they usually charge higher fees for these services.
5. Discount broker
A discount broker focuses mainly on executing trades at a lower cost, without offering personalised investment advice.
They are typically used by:
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experienced traders
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self-directed investors
Discount brokers provide online trading platforms that allow users to manage their own investments efficiently while minimising fees.
Choosing the right type of broker depends on your trading experience, preferred markets, and need for guidance or cost efficiency.
How brokers make money
Brokers earn revenue through different methods depending on their business model.
Common sources include:
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Commission fees: A fixed or percentage fee for each trade.
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Spreads: The difference between buying and selling prices.
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Account fees: Charges for maintaining trading accounts.
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Advisory fees: Fees for providing investment advice.
Some modern brokers offer low- or zero-commission trading but may still earn from spreads or other services.
Understanding how brokers make money helps traders evaluate trading costs and choose the right broker.
Risk Warning: Trading CFDs involves significant risk and may not be suitable for all investors. Losses can exceed your initial deposit. Please ensure you fully understand the risks involved before trading.
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