Stockbrokers, you have seen them in movies, observing graphs, making phone calls wearing fancy suits. But who is a stockbroker, and what do they do?
Stockbroker: Who and What It Is
What is a Stock?
Before we understand who a stockbroker is and what they do, we first must understand what a stock is. Stocks are tiny pieces of ownership from the issuing company. And Stocks have other names like shares and equity.
Stocks can be bought from the stock exchange market and sometimes from the issuing companies as well. The bookish term for the stock market is the secondary market. These stock markets must abide by rules and regulations set by the government. These rules and regulations are established to protect investors from fraud.
Now, why does a company sell stocks? First of all, not all companies can issue stocks; only public companies can. During incorporation, public companies opt for issuing shares.
To answer that question, companies sell stock to raise funds to invest in a project. Stocks have outrun every other investment option and established itself as the best. Companies issue shares to raise investments so that they can invest in a bigger and riskier project.
In return for the investment fund, the company offers dividends to shareholders. How much dividend the shareholders will get depends on how much profit the company makes and what amount of that profit do they want to declare as dividends.
However, companies are not bounded to pay the shareholders dividends. In case of loss, the company can decide not to declare dividends, and the shareholders cant legally bind them for this.
Other than dividends, there is another benefit to being a shareholder of a company; that is, the shareholders can cast a vote and decide the board members. When the need arises, the shareholders can cast a vote and determine the best person for the post.
There are two types of stocks, common stock, and preferred stock. Common shares are stocks that have no fixed interest rate making them more prone to risk. Common stockholder has the right to vote. However, if the company faces a loss or gets bankrupted. There is a very slim chance that the common stockholders will receive any payments.
On the other hand, preferred stocks feature fixed interest rates, but the stockholders have no voting rights. However, in case of bankruptcy or liquidation of the company, after the lenders, the preferred stockholder receive their payments. Since preferred stock comes with a fixed interest rate, these stocks are less risky.
Stockholders’ power is determined by how much stock the person holds. If a person owns a large number of shares, then that person gets to claim a part of income or assets. However, stockholders don’t run the business. Organizing the business and running it successfully to generate profit is in the hands of the board of directors.
Who Are They?
Stockbrokers are the middlemen who take care of your stocks for you. Unlike you’re daily necessities, you can’t buy shares from the convenience store. To purchase stocks, you need to go to the stock market. Nowadays, you will see that a computer is handling the task of stock brokerage. However, there are still human stockbrokers who are still working and managing the job for large investors.
What Do They Do?
If you’re an average shareholder, you will want to buy and sell your stocks through a stockbroker. The reason is that the stockbrokers know a lot about these issued stocks and are more capable of giving the best advice on which shares to buy, when to sell and what to do.
It is in the stockbrokers’ job detail to help you with the best advice. Having the necessary skills and working in a stock market for so long, they know which is the best shares to buy. Despite everything turning to a more computer-based service, some people still prefer to deal with a human stockbroker. The reason behind this is that stockbrokers can get the best price for a stock, they can buy a stock for you at a special price, and they can handle more than one transaction for you.
In exchange for all the services they provide you, the stockbrokers get a small commission out of your transaction. The stockbrokers’ job is just as lucrative as challenging.
The stockholders’ job is perfect if you have profound knowledge about finance, financial terms, and, most importantly, the stock market. In this type of job, you can expect to get a fat paycheque. Also, if you’re ambitious and your selling skills are top-notch, then this job is perfect for you.
However, like every other job, the stockbrokers’ responsibility also comes with challenges. If you are bad at handling rejections, then you’re not cut out for the job. You may call investors and get out-right rejected. The rise of online trading and the long working hours make this job excessively competitive.
How to Become a Stockbroker?
If you consider yourself a fit for the stockbrokers’ profession, then you can try. However, there is no beaten path to become a stockbroker, at least not education-wise. But there are some courses and degrees you can take to know more and stay at the top of your game.
Education-wise, an undergraduate degree along with an MBA degree, will help you a lot, especially attending courses like statistics and other quantitative courses. As for the experience, you can start as a college intern and make your way to the stock exchange markets. Most people start from a brokerage firm and gain skills as they go. A successful stockbroker will have profound knowledge about the financial markets, securities, rules and regulations, and accounting.
Finally, to be a certified broker, you must sit for the “Series 7 Exam” This exam is known as the General Securities Representative Exam. To sit for the exam, you have to be sponsored by a FINRA member firm or an SRO firm.
On the question paper, you will find 125 multiple choice questions which you must complete within 4 hours.
In conclusion, stockbrokers’ help us buy and sell stocks and provide us with the best advice. The job of a stockbroker isn’t an easy one, but it pays well.