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A brokerage firm, or simply brokerage, is a financial institution that facilitates the buying and selling of financial securities between a buyer and a seller.
Brokerage firms serve a clientele of investors who trade public stocks and other securities, usually through the firm’s agent stockbrokers. A traditional, or “full service”, brokerage firm usually undertakes more than simply carrying out a stock or bond trade. The staff of this type of brokerage firm is entrusted with the responsibility of researching the markets to provide appropriate recommendations, and in doing so they direct the actions of pension fund managers and portfolio managers alike. These firms also offer margin loans for certain approved clients to purchase investments on credit, subject to agreed terms and conditions.
Traditional brokerage firms have also become a source of up-to-date live stock prices and quotes. When a brokerage firm, in addition to buying and selling for clients, transacts for its own account, it is known as a broker-dealer.
What is a ‘Brokerage Company’
A brokerage company’s main duty is to be a middleman that connects buyers and sellers to facilitate a transaction. Brokerage companies receive compensation by means of commission once the transaction has successfully completed. For example, when a trade order for a stock is executed, an investor pays a transaction fee for the brokerage company’s efforts to complete the trade.
BREAKING DOWN ‘Brokerage Company’
The real estate industry also functions using a brokerage company format as it is customary for real estate brokers to collaborate, each company representing one party of the transaction to make a sale. In this case, both brokerage companies divide the commission.