A broker is a firm or individual that places trades in financial instruments on your behalf. It connects you to exchanges, market makers and other venues, and may also hold your cash and investments in a brokerage account.
In everyday terms, it is the platform or service where you send an order to buy or sell. Some brokers only execute orders, while others add research, education and portfolio tools. Exact services and protections vary by provider and jurisdiction.
How a broker sits between you and the market
Most investors cannot trade directly on an exchange. A broker is authorised to access trading venues and to route your order to where it can be filled. The venue could be a stock exchange, a futures exchange, an alternative trading system, or a market maker quoting prices over the counter. In crypto, a broker-like platform may access one or more exchanges or liquidity providers on your behalf.
Brokers typically operate in one of two models:
- Agency: the broker acts for you and seeks the best available price in the market according to its execution policy.
- Principal or dealing: the firm may take the other side of your trade and manage the risk internally, then hedge externally if needed. Some retail platforms blend both approaches depending on the product.
Market practice differs by asset class. Shares and exchange-traded funds are commonly routed to central order books, while many foreign exchange and over-the-counter products are dealt against a dealer or liquidity provider.
Types of broker you might encounter
The label broker covers a range of businesses:
- Execution-only or discount broker: offers low-cost trade execution with minimal advice.
- Full-service broker: adds research, corporate access and more personalised service. Fees are usually higher.
- Prime broker: serves institutions and hedge funds with financing, securities lending and consolidated custody.
- Introducing broker: brings clients to a larger broker or dealer and may provide client support while the larger firm handles custody and execution.
Some retail platforms focus on a single asset class, such as equities or futures. Others offer multi-asset access, from shares and bonds to options, foreign exchange and sometimes crypto. Product menus, account types and trading hours differ widely by provider.
What happens when you place an order
Placing a trade triggers several steps behind the screen:
- Order entry: you choose an instrument, size and order type. A market order seeks immediate execution. A limit order sets a price you are willing to pay or accept. Stops and other conditional orders only trigger once a price level is reached.
- Risk checks: the broker verifies you have cash or margin to support the trade and that it fits product permissions on your account.
- Routing: the order is sent to a venue or internalised. For shares, it may join the central order book, interact with a market maker, or participate in an opening or closing auction.
- Execution: the trade fills fully or partially depending on available liquidity. Fast-moving prices can cause slippage between the price you submit and the price you receive.
- Confirmation and settlement: you receive a trade confirmation. Cash and securities move between accounts on the settlement date, which varies by market and product.
On a live quote, you will usually see a bid price for selling and an ask price for buying. The difference is the spread you implicitly pay when you cross the market with a market order.
Example: you enter a limit order to buy 200 shares at 100.10. The best ask is 100.08 for 150 shares and 100.10 for 200 shares. You might be filled first for 150 at 100.08 and then for 50 at 100.10, leaving you with a blended entry price based on the two fills.
Fees, spreads and how brokers earn revenue
Brokers can charge or earn money in several ways. The mix depends on the provider and the product you trade.
- Commissions: a fixed amount per trade, a fee per share or contract, or a tiered schedule based on volume.
- Spreads and mark-ups: for instruments quoted with a dealer, the firm may include its fee in the spread. Even in zero-commission models, the cost often appears in the spread you pay when you trade.
- Financing: interest on margin loans or overnight financing for leveraged positions.
- Cash interest: the firm may pay interest on uninvested cash and keep a portion of the yield.
- Securities lending: if your shares are held in street name, the broker may lend them to short sellers and share or retain the revenue depending on your account terms.
- Market rebates or order flow arrangements: in some markets, venues or liquidity providers pay rebates for certain types of orders. Rules and disclosures vary by jurisdiction.
- Currency conversion fees: when you trade assets in a different currency, a conversion spread or fee may apply.
Always compare the all-in cost, not just the headline commission. For an active trader in tight-spread markets, a small improvement in execution quality can outweigh a low fee schedule.
Custody, margin and other services
Beyond execution, many brokers provide custody. That means holding your cash and investments in accounts that are recorded for you, handling dividends, coupons and corporate actions, and delivering statements and tax reports. Where shares are held in a nominee account, you still have a beneficial interest, though voting arrangements can differ by firm and country.
Margin facilities allow you to borrow against eligible holdings to increase position size. This amplifies gains and losses, and comes with daily interest and maintenance requirements. Short selling typically involves the broker borrowing shares and delivering them to the buyer while you carry a liability that must be repurchased later. Availability and costs depend on borrow supply and the broker’s lending relationships.
Many brokers also offer data, price charts, screeners, research, options analytics, API access and risk tools. For crypto access, some firms act more like an exchange, while others aggregate liquidity and custody through third parties. The structure and protections differ, so it is worth understanding how your specific provider operates.
Risks, protections and how to assess a broker
Using a broker introduces operational and counterparty risk. Outages, slow routing, poor risk controls or weak custody arrangements can affect your outcome. Regulated brokers are usually required to meet capital, conduct and client-asset rules, but the details vary by jurisdiction and can change.
Points investors often check include:
- Authorisation and supervision: is the firm licensed where you live or where it operates your account.
- Client asset handling: how cash and securities are held, whether segregated from the firm’s own assets, and how corporate actions are processed.
- Execution policy: how the firm seeks the best result across price, costs, speed and likelihood of execution.
- Fees and financing: commissions, spreads, margin rates and any conversion or withdrawal charges.
- Platform reliability: order handling during busy market periods, and the quality of customer support when something goes wrong.
- Product coverage: access to the instruments, venues and order types you need for your strategy.
Investor compensation schemes or deposit protections, where they exist, have limits, exclusions and conditions. Review current rules for your location and account type if these are important to you.
Broker vs dealer vs exchange
A broker’s primary role is to act as your agent. A dealer quotes prices and may commit its own capital to trade with you. Many firms hold both permissions and switch roles by product or by trade.
An exchange is a regulated venue that matches buyers and sellers under set rules. Your broker connects you to the exchange and manages the post-trade process. In dealer-led markets, your broker may route to one or more liquidity providers rather than a central order book.
Knowing which role your firm is playing, and where your order will interact with the market, helps you interpret fills, costs and the risks you are taking each time you press buy or sell.