A broker is an intermediary between clients and producers (of services). There are brokers in insurance, real estate, vehicle sales, etc. The main objective of this type of broker is to offer affordable prices to its customers by playing on the quantities on the producer's side.
The broker we are interested in here is the stock exchange broker.
There are as many "classes" of brokers as there are, for example, "classes" of bankers. For example, my banker may sell me alarms, telephone subscriptions, insurance and, from time to time, a credit card. Par comparaison, mon banquier me propose à la vente des alarmes, des abonnements téléphoniques, des assurances et de temps en temps, une carte de crédit. This is what we call a banker. Is this type of banker the same as the investment banker? No! The same goes for brokers. This term groups several professions and finding the broker you need looks hard nowadays.
The broker can perform several tasks such as receiving and transmitting orders, clearing (delivery of financial products, i.e. closing out buyers and sellers, winners and losers) or simply maintaining and managing clients' accounts.
The brokerage business is of course regulated, for example by the "Autorité des Marchés Financiers" in France. (There are actually few brokers headquartered in France because the regulation, in favour of consumers, is very heavy, restrictive, time-consuming and expensive.)
The rise of the Internet has enabled the development of private trading and therefore of brokers' activities. In the past, you had to go to your bank or make a phone call to buy or sell a financial product; now you just have to connect to the Internet, open your trading work station, and in a couple clicks, the order is placed, the capital gains saved and transferred to your bank account. Some brokers even offer a credit card to their clients to pay directly with trading profits.
This has obviously resulted in good and bad consequences for the sector. On the positive side, financial markets have evolved as more and more individuals have started trading more, better and more often. New financial products have emerged that allow everyone to find the right match for their needs according to their expectations, objectives, schedules and financial resources. On the negative side, we have seen more and more brokerage players appear, a good majority of whom have been unscrupulous about legal and moral rules (incorrect or no transmission of client orders, abusive fees, non-existent or foreign language after-sales service, etc.).
The broker manages your trading account. He/she executes your market entry and exit orders and charges a commission for this. He/she is the intermediary between you and the market. You cannot trade without a broker but this does not exempt you from paying attention to the services offered. Your broker must have direct access to the markets you want to trade in, without any intermediary. Access to the broker's platform must be easy for you, even if it is learned quickly. Try trading in your own language or one you understand. Avoid brokers whose prices are prohibitive.
As a general rule, a "good" broker is paid in commissions on his clients' trades. For example, if you trade a fiven futures contract, have 3 such contracts and if the price is €4 in/out per contract and per trade, this means that your broker will charge you €2 when you buy + €2 when you sell, multiplied by 3 contracts = €12 per trade. Imagine that you trade 10 days a month and 10 months a year, you will leave €1,200 to your broker (whether or not you earn money on the markets). In order to allow their clients to trade in the Forex market, some brokers (but not all) do not charge you a commission but propose a spread. The spread is the difference between the purchase price (ask) and the sale price (bid). The advantage for a trader to trade with spread is that there is no commission. The disadvantage is in terms of timing: the forex broker (market maker) will not allow you, once on the market, to leave it as long as the price remains in a specific price range.
New types of brokers are emerging. The first category is related to bank brokers. For a long time, banks have been the only financial intermediary for a private individual. As we have seen, technological developments have enabled everyone to intervene directly in the markets. So what is the point of asking your bank to place an order? More and more customers have therefore turned away from their bank to (1) manage their own trading capital (financial news has shown the weaknesses of traditional financial institutions such as banks); (2) reduce stock exchange or bank fees (by removing an intermediary, costs are reduced). The banks therefore counter-attacked in an attempt to retain their customers and capture new ones. These online banks/brokers strongly communicate in the media ("my banker is me").
A second category of "new" brokers includes discount brokers, market makers and other Forex brokers. These intermediaries do not charge a brokerage commission, but do request high spreads. It is also possible to open trading accounts free of charge (any account opening, regardless of the broker, is free of charge anyway) and more importantly without any financial minimum (in addition to the margin for futures). Although it may appear to be an advantage, opening a trading account without a minimum deposit is a decoy: statistically, traders without financial strength do not last long on the markets. There is no longer any admission ticket, everyone can play on the markets, which is a delight for informed and professional traders. Trading is a zero-sum game, what one loses, the other wins. When you open a trading account with 300 euros, statistically, you will lose them very quickly. Often, these brokers even offer free trading training. This is a second decoy for two reasons: (1) it is a training on how to use the broker's trading platform (or how to quickly lose capital); and (2) nothing is free.
A third category of brokers are not actually brokers. They are called introductory brokers (IB). It is simply a client opening trading accounts for his regular broker. There is a business provider relationship here.
To conclude, every trader must have a broker. The latter keeps the former's account and executes his orders. The broker provides a whole range of services (financial products, stock market orders, etc.) for a fee: the commission.