What Does a Stockbroker Do, and How Do You Become One?

Are Human Stockbrokers Even Necessary These Days?

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Buying stocks isn’t like buying groceries or books. There are no stores on every corner where stocks are sold, and the average person can’t buy stocks simply by handing money to a cashier.

Stocks are bought and sold through stock markets, such as the New York Stock Exchange and NASDAQ. And for the average person to buy stocks via these exchanges, they usually need a middleman to actually execute the trade. This middleman is called a stockbroker.

These days, the actual execution of stock trades for individual investors is often carried out electronically by a discount brokerage firm, such as Fidelity, Scottrade, E-Trade, or Charles Schwab. But many trades, especially those of large institutional investors, are still handled by human brokers.

Stockbrokers are usually very well-versed in the markets and can offer advice on the best time to buy and sell. It is their job to find clients the best possible price. In exchange for his executing the trade and offering advice, a stockbroker then gets a commission for his work, 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.

The Path to Becoming a Stockbroker

While there are no specific educational requirements for becoming a stockbroker, a person who wants to enter this profession should consider pursuing an undergraduate degree in business. Many stockbrokers also have a Masters in Business Administration (MBA) or a Masters in Finance. It also helps if you have some education in mathematics, statistics, and quantitative analysis.

Stockbrokers will often start working for a brokerage firm or bank in a different role (many start as college interns) then gain on-the-job experience. To become a broker, they must show that they have a deep understanding of financial markets, regulations, and accounting practices and then pass the General Securities Representative Exam, commonly known as the Series 7 exam, which is administered by the Financial Industry Regulatory Authority (FINRA). To take this exam, a person must be sponsored by a firm that is a member of FINRA or a similar self-regulatory organization (SRO).

The Series 7 exam is difficult and consists of 250 multiple choice questions that must be completed in 360 minutes. After October 1, the test will be 125 questions and 225 minutes long, but must be combined with a separate Securities Industry Essentials Exam. That exam will consist of 75 additional 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 exam to be registered in a state.

Online Discount Brokerages Have Taken Over

It was once impossible to invest in stocks without going through a human stockbroker. That’s no longer the case. Now, most investors can buy and sell stocks and manage their investment portfolio without dealing with another person. Discount brokerage companies allow an individual to trade stocks using an online platform, usually for less than $10 per trade. (In fact, these companies have been recently undercutting one another with lower and lower fees.) It’s even possible now to trade via a smartphone app.

Discount brokerages have broken down barriers and lowered the cost of investing for most people, ensuring that trading stocks is not an activity only practiced by the wealthy.

This is not to say that stockbrokers can’t provide a valuable service. They can help execute complicated trades and provide advice to investors. But if you’re an average investor who wants to simply purchase 20 shares of Coca-Cola, a human stockbroker probably isn’t necessary.  

Job Prospects for Stock Brokers

There will always be people and institutions who need assistance in buying and selling stocks. There are millions of stocks and other securities trading on the New York Stock Exchange alone every single day, and not all of them will be executed via computer.

But there’s no question that the number of people working as stockbrokers has been on the decline. FINRA reported 630,132 registered representatives as of December 2017, down from 672,688 a decade ago. FINRA reported more than 5,000 member firms in 2007, but 3,835 at the end of 2016.