Brokerage Firm

Brokerage Firm

A firm that conducts transactions on behalf of a client. Some brokerage firms only conduct transactions, while others also offer different types of investment advisory services. Brokerage firms derive their profit from commissions on orders given. That is, they usually collect a percentage of the value of each transaction, though some charge flat fees. Clients may give orders in a variety of ways. One may meet with a broker, call on the telephone, or give orders over the Internet. Brokerage firms handle two main types of brokerage accounts: advisory accounts and discretionary accounts. Brokers are only allowed to conduct transactions on advisory accounts on the specific orders of the account holder, or under very specific instructions. Brokerages have much more leeway over discretionary accounts, conducting transactions not prohibited by the account holder in accordance with the holder's investment goals and the prudent man rule. In practice, most brokerage firms are in fact broker-dealer firms. Most brokerage firms must register with the SEC.

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Brokerage firm. Brokerage firms, also known as broker-dealers, are licensed by the Securities and Exchange Commission (SEC) to buy and sell securities for clients and for their own accounts.

When a brokerage firm sells securities it owns, it is said to be acting as a principal in that transaction.

Firms frequently maintain research departments for their own and their clients' benefit. They may also provide a range of financial products and services, including financial planning, asset management, and educational programs.

Brokerage firms come in all sizes, from one- or two-person offices to huge firms with offices around the world. They are sometimes differentiated as full-service or discount firms, based on pricing structure and client relationships.

Some brokerage firms exist entirely online, and nearly all firms offer you the option of placing orders electronically rather than over the telephone. In most cases, trading electronically is substantially less expensive than giving buy and sell orders by phone.