A brokerage firm is an entity that allows for the trading of bonds, stocks and other financial investments between buyers and sellers.
Rather than being paid directly for services provided, a brokerage firm is instead paid a commission after successfully completing a transaction.
Brokerage firms can often be grouped into two main categories:
1. Discount online brokerages
2. Traditional brokerages.
A discount brokerage firm provides services that are geared towards independent investors, and, as such, they provide little to no investment advisory.
Since they leave you to make your own financial decisions, they consequently charge considerably less than traditional brokerages.
On the other hand, a traditional brokerage firm provides investors with a much more extensive array of services and is noticeably more personal with their dealings.
They are not only expected to place investment orders on their client’s behalf; they are also expected to function as “pseudo” money managers, giving advice and recommendations on the investments that are right for each investor.
Some of these firms will also provide approved clients with margin loans, which they can then use to subsequently buy their investment on margin.