What is stock broking? A complete guide for beginners

Stock broking is an important part of the functioning of the stock market. Most importantly, it facilitates investors to participate in trading and investing in stock markets. Read on to learn more about stock broking and how digital investing apps make it easier for investors to access stockbrokers’ services.

What is stock broking? 

Stock broking is the business of facilitating the buying and selling of stocks, bonds, and other securities through a brokerage firm or broker. Simply put, a stockbroker acts as an intermediary between investors and the stock market. They assist investors with executing trades as per their investment needs and strategies. 

In India, stockbroking emerged as a profession in the late 19th century with the establishment of the Bombay Stock Exchange in 1875. Over the decades, it has evolved significantly with technological advancements and regulations. Today, online stockbroking platforms have made investing in stocks more accessible than ever before. Let’s understand the key aspects of stock broking.

The role of a stockbroker

A stockbroker is responsible for executing buy and sell orders placed by investors. Their primary roles include:

  • Researching companies and analysing investment opportunities to provide guidance and recommendations to clients.
  • Explaining investment products and strategies to help investors make informed decisions. 
  • Guiding clients through the account opening process and executing trades as per their instructions. 
  • Keeping records of clients’ portfolios, transactions, and providing periodic statements.
  • Ensuring best execution of trades at optimal prices on behalf of investors.
  • Providing post-trade services like dispute resolution and addressing investor grievances.

Types of stockbrokers 

Stockbrokers can be categorised based on the type of client they cater to. 

Full-service brokers: They provide extensive research, guidance, and portfolio management to high-net-worth individuals and institutional clients. Fees are usually higher.

Discount brokers: They offer basic trading services at lower commissions. Suitable for active traders seeking execution-only services.

Online brokers: Also known as discount brokers, they provide online trading platforms for direct trading by retail investors. Fees are lowest.

Workings of a stockbroker 

When an investor wishes to buy or sell stocks, they place orders with their broker over the phone, website, or mobile app. The key steps include the below.

1) Placing an order – The investor specifies the stock name, type (buy/sell), price, and quantity. 

2) Order execution – The broker tries to execute the order at the best available market price on the exchange. 

3) Settlement – Clearing corporations handle funds/stock transfer between buyer and seller typically T+2 working days after trade.

4) Commission – The broker charges a small percentage of trade value as a broking commission or flat fee.

5) Contract note – The broker issues a receipt confirming order execution details to the investor.

Digital investing: The rise of online stockbrokers

India has witnessed a proliferation of digital-only stockbroking platforms over the last few years. These online stockbroking platforms aim to make stock investing more simple, affordable, and accessible for new-age investors. For example, IndusInd Bank’s INDIE Stock Broking is a one-stop investment app that allows users to seamlessly invest in stocks, IPOs, ETFs, and trade in derivatives from a single platform. Some of its key features include:

– Zero account opening charges to remove entry barriers. 

– Advanced charts and drawing tools to optimize trading strategies.

– Real-time market data to stay updated on price movements. 

– ‘Bracket Orders’ to book profits automatically at pre-set target prices.

– Simplified user interface tailored for new investors.

Such digital-first stockbrokers are disrupting the traditional model through lower commissions, seamless onboarding, and powerful trading tools. They have led to a manifold increase in direct equity participation from individual investors in India in recent times.

Conclusion

Stock broking plays a pivotal role in facilitating participation in the equity market. With user-friendly stockbroking platforms, investing in stocks is becoming safer and more straightforward for new investors in the country. Choosing the right broker remains an important decision for building long-term wealth through the market.