InvestorQ : I understand all about a broker but can you tell me how the broker office actually works and what are the value adds they provide?
Dilmini Mercia made post

I understand all about a broker but can you tell me how the broker office actually works and what are the value adds they provide?

Answer
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Dawn Cherian answered.
1 year ago


To appreciate the role of brokers better, it is necessary to understand their role more critically in the overall market set up.

· How a broker office works?

· What other services do brokers provide?

· What is the brokerage that a broker can charge a customer?

· How do I check about my broker before trading through him?

Let us address each of these issues separately and get a better understanding of the role of a broker in the stock market context.

How a broker office works?

A broker office typically has a front office, mid office and back office. The front office basically focuses on getting customers, giving trading ideas to the customers and getting them to buy and sell in the market based on research inputs. The mid-office processes the contracts at the end of the day, sends out the contract notes and follows up with clients for payments, debit instruction slips etc. The back office is the system that supports the mid office and does most of the routine processing work.

What other services does a broker provide?

A broker will typically provide you with research and trading ideas on a daily basis. These may be based on technical or on fundamental analysis. This is a basic service which most brokers offer. Additionally, many brokers will also help you in financial planning. They will help you identify your long term goals and plan them through investments in equity, mutual funds, bonds, insurance etc. Many brokers also provide additional services like tax planning, estate planning, will drafting etc.

What is the brokerage that a broker will charge me?

There are no regulations on what brokerage the broker can charge to his customers. SEBI has only defined the maximum brokerage at 2.5%, of the value of the transaction above which the broker cannot charge. But in a competitive scenario, no broker can afford to charge you such high brokerage rates. Brokerage rates are based on a variety of other factors. Firstly, the brokerage will be higher for equity transactions but much lower for futures & options (F&O) transactions. In fact, in case of options trading, most brokers offer fixed pricing on a per lot basis. Secondly, the brokerage will also depend on your past relationship with the broker. If you have been doing business through a particular broker or sub-broker for many years, they will be happy to offer you the most competitive brokerage rates to retain you as a customer. Lastly, brokerage rates also depend on the volume of business that you give them. Brokers are normally willing to offer lower brokerages if you trade large quantities. Based on these factors you can talk to your broker and ask them for the best brokerage deal.

How do I check the background of my broker / sub broker before I start trading with them?

First and foremost, all brokers / sub brokers are required to be registered with SEBI. You can visit the website of SEBI or the Stock Exchanges and get all details pertaining to these registered brokers. The SEBI constantly passes orders and penalties against brokers who have been guilty of breach of rules and regulations. You can check the SEBI website to see if that particular broker has too many complaints pending against him. Thirdly, there are a lot of trading forums where traders and investors come and give their feedback on various brokers and sub-broker services. This can also be a good guide for you. However, we would like to forewarn you that these forums do not do any fact check of what is posted and are not regulated. Hence their opinions may not be entirely reliable. You need to take them with a pinch of sale. A broker / sub-broker form a very important link in the capital market cycle by bringing the investor and his investment closer together.