The Role of the Brokerage Firm

Although most trading takes place on an exchange, you can’t get there without going through a broker, your entré to the trading world. In fact, your only contact with trading may well be your broker as you may not know or care which exchange is executing your order.

The broker serves a number of functions in addition to holding your trading account and transmitting your orders to the exchange. Depending on the level of service you require, the broker can educate you about trading; provide you with data, price quotes, research reports and other information; offer trading recommendations, or perhaps even trade your account for you in a managed account. For more information on how to determine what type of broker you need, see the section in this tutorial on picking a broker.

At a minimum a brokerage firm serves as a conduit to expedite your orders, reports confirmations and provides you with account statements of your activity.

An important broker function is to determine traders’ "suitability" for trading various instruments based on their financial status and their eligibility to trade specific positions based on the amount of money in their account. As a gatekeeper to the trading arena, the broker also helps the futures or securities industry maintain the integrity of the trading process by screening every customer and every order as part of its fiduciary responsibility to collect, hold and monitor the funds you entrust to a segregated customer account.

All U.S. brokerage firms must be registered with government regulatory agencies. Depending on their level of financial backing and the services they provide to traders, futures brokerage firms may be classified as futures commission merchants (FCMs) or introducing brokers (IBs). Individual futures brokers are registered as associated persons (APs).

1. What Is a Good Trading Instrument?
2. Trading Equities
3. Trading Futures
4. The Role of an Exchange
5. The Role of the Brokerage Firm
6. The Role of the Regulator
7. How to Pick a Broker
8. How to Place Orders

Main Trading Resources Section