What Does a Stockbroker Do and How Do You Become One?
Are Human Stockbrokers Even Necessary Anymore?
You won't find physical stores on every corner that sells stocks, and the average person can’t buy stocks by handing money to a cashier.
Stocks are bought and sold through stock markets such as the New York Stock Exchange and NASDAQ. For the average person to buy stocks through these exchanges, they usually need a middleman to execute the trade. This middleman is called a stockbroker.
While it hasn't always been the case, the actual execution of stock trades for individual investors is most often carried out electronically by a discount brokerage firm, such as Fidelity, TD Ameritrade, E-Trade, or Charles Schwab. But human brokers still handle many trades, especially those for large institutional investors.
Stockbrokers are well-versed in the markets and can offer advice on the best times to buy and sell. It is their job to find clients the best prices possible. In exchange for executing the trade and offering advice, a stockbroker gets a commission in the form of a flat fee or percentage of the value of the transaction.
In the age of online trading, there is less demand for human stockbrokers. But there may be instances in which an investor wishes to work directly with someone else to execute a stock trade. For example, they may want to work directly with a broker to ensure the sale is executed at a specific price, or have multiple transactions they’d like executed in a specific order.
Becoming a Stockbroker
While there are no specific educational requirements for becoming a stockbroker, you might want to consider an undergraduate degree in business. Many stockbrokers also have a master's in Business Administration (MBA) or a masters in finance. It also helps if you have some education in mathematics, statistics, and quantitative analysis.
Stockbrokers often start working for a brokerage firm or bank in a different role (many begin as college interns), and then gain on-the-job experience. To become a broker, they must show a deep understanding of financial markets, regulations, and accounting practices. Brokers should also pass the General Securities Representative Exam, commonly known as the Series 7 exam, administered by the Financial Industry Regulatory Authority (FINRA). To take this exam, a person must be sponsored by a FINRA member firm or a member of a similar self-regulatory organization (SRO).
The Series 7 exam is difficult and consists of 125 multiple choice questions that must be completed in 225 minutes. It must be combined with a separate Securities Industry Essentials Exam, which consists of 75 questions and lasts 105 minutes.
These exams will permit a broker to buy and sell most securities, may be other exams required to trade certain things. For example, someone who wants to buy and sell municipal bonds may have to take the Series 53 exam. There are also other required exams, including the Series 66 and Series 63 exams, to be registered in various states.
Online Discount Brokerages
It was once impossible to invest in stocks without going through a human stockbroker, but now most investors can buy and sell stocks and manage their own investments. Discount brokerage companies allow an individual to trade stocks using an online platform, usually for less than $10 per trade.
Discount brokerages have broken down barriers and lowered the cost of investing for most people, ensuring that trading stocks is no longer restricted to the wealthy. This is not to say that stockbrokers can’t provide a valuable service. They can help execute complicated trades and provide expert advice to investors. But if you’re an average investor who simply wants to purchase 20 shares of a well-known company, a human stockbroker isn’t necessary.
Some people and institutions will always need assistance buying and selling stocks. Millions of stocks and other securities trade on the New York Stock Exchange alone every day, and not all trades will be executed using computers.
But the number of stockbrokers has declined. FINRA reported 630,132 registered representatives as of December 2017, down from 672,688 a decade before. FINRA reported more than 5,000 member firms in 2007, but 3,726 at the end of 2017.