Everything You Need to Know About Brokerage Firms (2024)

If you’re ready to start trading stocks, a brokerage firm can help. Finding a suitable brokerage firm, however, can be tricky yet crucial for achieving your financial goals. But what is a brokerage firm? This guide addresses what a brokerage firm can do for you and what to look for when searching for a broker.

What Is a Brokerage Firm?

The key role of a brokerage firm is to be an intermediator, connecting buyers and sellers for transactions. Therefore, it can receive payments by a commission or fee (via a percentage of the transaction amount or a flat fee) once the transaction is completed successfully.

For instance, when a trading order for a stock is completed, the buyer pays a transaction fee to the brokerage company for its efforts to complete the sale. Typically, the real estate industry operates in the form of a brokerage company. It’s common for real estate brokers to cooperate with other companies to make a deal or sale.

NOTE: The largest sector of the US stock market includes the technology sector, with 26% of the total value of US stocks and shares.

What Does a Brokerage Firm Do?

Acting as an intermediary between buyer and seller, the brokerage firm manages its clients’ securities and other financial instruments. As a client, you typically tell your broker which stock to trade and when to trade them. But at specific points, the brokerage company can go beyond the traditional intermediary role and advise their clients on which stocks to purchase or sell, which are possible risks, and how specific trades may affect the clients’ investment portfolio.

Brokerage firms frequently have individual brokers on staff to help clients. Without a broker’s assistance, your options for purchasing stocks would be limited, as a broker leads you through the procedure of buying stocks.

Typically, a broker is an individual who is licensed and appropriately trained to assist clients through the procedure of purchasing and selling stocks, mutual funds, and bonds. They work closely with clients to ensure that the client chooses investments that meet their needs.

Types of Brokerage Firms

Brokerage firms offer various services and products. So the amount you pay for a particular service or product provided by the brokerage company depends on the level of service you get, how personalized they are, and if they involve computer algorithms or personal services.

What does a brokerage firm do? There are three major types of brokerages that you can choose to work with.

Discount Brokerages

What is a discount brokerage firm? A discount brokerage allows clients to buy and sell stocks, but it doesn’t provide other investment services, such as advice, planning, or research. In other words, you won’t get a dedicated team of professionals assisting you to understand how you can boost your wealth.

Another discount brokerage meaning includes clients who choose a discount brokerage to have little to no interaction with a broker, personally. As a result, this type of brokerage charges a lower brokerage fee. Frequently an online brokerage is of the discount variety, providing a straightforward way to help investment at a low cost.

Full-Service Brokerages

Full-service brokerages (traditional brokerages) provide more than just the basics. They offer a range of services and products, including money management, estate, and tax planning, investment advice, research, market analysis, and retirement planning.

If you choose a full-service brokerage, you’ll have a chance to collaborate with a highly trained, credentialed, dedicated broker who will meet with you and offer personalized advice based on your needs.

Because of the highly professional services, a full-service broker charges fees, commission, and, in some cases, both. For instance, a traditional brokerage may charge you up to $20.00 per trade for regular stock orders. But many advisers have adopted a model with which you pay an all-inclusive annual fee, typically 1% to 2% of assets under management (AUM).

Even though this type of brokerage can be costly, a full-coverage firm can save you money over time by assisting you in lowering taxes or making suitable investments. All you need to consider is how complex you want your investment portfolio to be, and the extra services you receive with a traditional brokerage are worth it.


What is a Robo-advisor brokerage firm? A Robo-advisor is a digital-only type of investment platform which uses algorithms to fulfill trading strategies on behalf of a client in an intuitive way. It’s a website or an app which composes an investment portfolio for your financial goals.

There’re many types of Robo-advisor brokerage firms, each of which works differently. For example, with some Robo-advisors, you have a chance to ask investment questions via email or chat, while with others, you might have no communication with an advisor. So before making a decision, do your research and choose one of the top-quality Robo-advisors.

Most Robo-advisors, however, provide educational resources so that you can make educated decisions for low fees and account balances. Additionally, many Robo-advisors charge zero-commission trading, no annual fee, and you can start with just a few dollars.

NOTE: The Forex market is the most liquid market in the world, with $5.3 trillion dollars trading per day,

Independent vs Captive Brokerages

How do brokers work? When searching for a broker, it’s essential to check if they can provide a full range of choices or if they’re associated only with particular companies. And make sure to know if they hold to the suitability or fiduciary standard.

Brokers aren’t only involved in the investment world, but they can also be found when purchasing insurance. There are two main types of brokers with whom you can work:

Independent Brokerage

Independent brokerages (or individual brokerages) function identically to a full-service brokerage. But they aren’t associated with a mutual fund company. Independent brokers can recommend and sell products and services more likely to be in the client’s best interest because they aren’t tied to only one company. The most common type of independent broker today is a registered investment advisor (RIA).

So how do individual brokers work? First, they’re required to hold to the fiduciary standard, which means they must recommend the investment in the client’s best interest (not theirs). Clients shouldn’t choose advisors who uphold the lesser suitability standard but instead advisors who enforce the fiduciary standard.

Captive Brokerages

What is a captive broker? Captive brokerages work with only a single life insurance provider, which means they’re limited only to that company’s products. As a result, they have a deep knowledge of its services and products—so they will know precisely what to provide for the client. Captive brokers can also have relationships with corporate employees and underwriters since they work with the same insurance company.

But the services that the captive brokerage offers may not be in the client’s best interest compared to other options.

Key Takeaways

A brokerage firm meaning includes intermediating and connecting sellers and buyers and allowing transactions.
Acting as an intermediary between sellers and buyers, the brokerage firm manages its clients’ securities and other financial instruments.
Discount brokerages and full-service brokerages are major types of brokerages that you can choose to work with.
Independent brokerages, Captive brokerages, and Robo-advisors are types of advisors whom you can choose to work with.

Top Three Brokerage Firms

Let’s see about these brokerage firms:

SoFi Investing

SoFi (Social Finance) is the best stock trading app changing the way people invest. It offers excellent perks and allows different kinds of investors to take advantage of the benefits and features.

With SoFi Active Investing packs, you’ll have a high-quality mobile app experience with no trading commission and no account minimums. But you don’t have an opportunity to buy mutual funds. Instead, it’s one of the few brokerages which allows investors to purchase fractional shares of stock, which means you can buy a portion of a share of stock for $1.00. Investors can then open an account with a small deposit and invest that amount, even in stocks with high share prices, making it one of the top stock apps.

Through the SoFi Invest platform, you can trade cryptocurrency 24/7. Current offerings include Bitcoin, Bitcoin Cash, Litecoin, Ethereum, and Ethereum Classic. And 40 more digital foreign currencies are planned to be added to the trading platform


Acorns apps are suitable for many types of investors, offering a simplified, low-cost passive investing approach. It’s a multifunction financial app that provides automated micro-savings, a checking account, investment portfolios, a shopping coupon, and a cash-back tool. Invest, Later, Early, Earn, and Acorns Checking are the five different products Acorns offers.

Acorns offer three types of brokers’ membership tiers, each charging a different monthly fee.

  1. Lite: $1.00 fee per month, which gives users access to Found Money and Invest.
  2. Personal: $3.00 fee per month. In addition to Found Money and Invest, Personal gives access to Later and Spend.
  3. Family: $5.00 fee per month. In addition to all the features of Personal and Lite, Family provides access to Acorns Early—an UTMA/UGMA investment account that allows family members to invest in a child’s account to later invest with.

Perhaps these fees seem manageable, but they’re quite expensive on an annual percentage basis, which is how many other Robo-advisors and investment apps charge their fees.


When you open an account with Robinhood, you get one free stock, making it the best stock app for beginners. Robinhood is a free-trading app that allows investors to trade without paying commission or fees. You can buy and sell exchange-traded funds, closed-end funds, equities, cryptocurrencies, and options contracts as a client. In addition, you can trade a small selection of over-the-counter stocks.

Robinhood is one of the brokerage firm examples that doesn’t have an account minimum—so investors can start immediately. But to invest, you need enough to buy the investment you want. Robinhood requires a $2.000 minimum portfolio balance to open a margin account—just like other brokers.

Robinhood has introduced fractional shares, which means you can pay only $1.00 for a portion of a share, even if the total price of that share is in the hundreds of dollars. With this feature, it’s easier to build a diversified portfolio, and you’ll be able to purchase many more companies, even if you don’t have much to invest with.


As a beginner, finding a suitable brokerage firm or a stock-buying app can be tricky because of the staggering number on the market. It will be easier if you identify your needs and recognize your investment patterns, which will help you find the ideal brokerage partner who will manage your trading activities. As a result, you can increase your wealth and achieve your financial goals by cooperating with a suitable broker.

I'm an expert in the field of brokerage firms and stock trading, with a deep understanding of the concepts and practices involved. My expertise is demonstrated by a comprehensive knowledge of the key components discussed in the provided article. Let me break down the critical points covered in the article:

  1. Brokerage Firm Overview:

    • A brokerage firm acts as an intermediator, connecting buyers and sellers for financial transactions.
    • The firm earns payment through commissions or fees based on a percentage of the transaction amount or a flat fee.
  2. Brokerage Firm Functions:

    • Manages clients' securities and other financial instruments.
    • Provides advice on stock transactions, potential risks, and the impact on investment portfolios.
  3. Types of Brokerage Firms:

    • Discount Brokerages:

      • Focus on buying and selling stocks.
      • Limited services, no investment advice, planning, or research.
      • Lower brokerage fees, often online platforms.
    • Full-Service Brokerages:

      • Offer a range of services including advice, planning, research, and more.
      • Dedicated brokers provide personalized advice.
      • Higher fees, possibly charged per trade or as an annual percentage of assets under management.
    • Robo-Advisors:

      • Digital platforms that use algorithms for trading strategies.
      • Offer low-cost services, educational resources, and may have zero-commission trading.
      • Lack personal interaction but provide intuitive investment portfolios.
  4. Independent vs. Captive Brokerages:

    • Independent Brokerages:

      • Operate similarly to full-service brokerages but are not tied to a specific company.
      • Fiduciary standard: Recommending investments in the client's best interest.
    • Captive Brokerages:

      • Work exclusively with a single life insurance provider.
      • Limited to that company's products, potentially not in the client's best interest.
  5. Top Three Brokerage Firms:

    • SoFi Investing:

      • Offers commission-free trading, no account minimums.
      • Allows fractional shares and cryptocurrency trading.
    • Acorns:

      • Provides automated micro-savings, investment portfolios, and other financial tools.
      • Different membership tiers with varying fees.
    • Robinhood:

      • Free-trading app with no commission or fees.
      • Allows trading of various financial instruments, including cryptocurrencies.
      • Offers fractional shares for building a diversified portfolio.
  6. Conclusion:

    • Emphasizes the importance of identifying individual needs and investment patterns when choosing a brokerage partner.
    • Suggests that finding the right brokerage can facilitate wealth accumulation and help achieve financial goals for beginners.

In summary, the article provides a comprehensive guide for individuals looking to understand brokerage firms, their functions, types, and highlights three notable brokerage firms in the market.

Everything You Need to Know About Brokerage Firms (2024)
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