Broker
A broker is a regulated firm that gives you access to markets and executes your orders, usually for a commission, a spread or other fees.
Most people cannot trade directly on an exchange. They open an account with a broker, which holds their money, sends their orders to the market and reports the results. The broker you choose affects what you can trade, what it costs, how your orders are filled and how safe your money is. This entry explains what brokers do, how they earn money, and what to check before opening an account.
- Category
- Trading Basics
- Reading time
- 4 min
- Also called
- Brokerage, Broker-dealer, Brokerage firm
- Updated
A broker in plain words
A broker is the middleman between you and the market. You tell it what to buy or sell; it passes the order to an exchange or another trading venue, or fills it itself.1 See Exchange and Order.
Brokers are paid through commissions, the spread, financing charges and other fees.2 A trade advertised as “commission-free” still has costs. See Trading Fees and Commissions.
How to choose a broker, step by step
Check regulation
Confirm the firm is authorised by the financial regulator where you live, using the regulator’s own register.3
Check what you can trade
Shares, ETFs, futures, options, currencies or crypto — and on which markets.
Compare total costs
Commissions, spreads, overnight financing, currency conversion and inactivity fees.
Understand how orders are filled
Is the broker routing to exchanges, or taking the other side of your trades?
Check how your money is held
Look for segregated client accounts and any investor-protection scheme.
Test the platform
Use a demo or small account to check order types, data and support.
Worked examples
Example 1 — “Free” is not free
CostsBroker A charges $0 commission but quotes spreads $0.03 wider than Broker B, which charges $1 a trade. You trade 500 shares.
| Broker A extra spread | 500 × $0.03 = $15 |
| Broker B commission | $1 |
For this trade size, the commission broker is cheaper. Compare total costs, not headlines.
Example 2 — Currency conversion
Hidden feeA European trader buys $10,000 of US shares. The broker charges 0.5% to convert euros to dollars, each way.
| Conversion cost in and out | ≈ $100 |
Hidden conversion fees can exceed commissions. Check them before trading foreign markets.
Example 3 — An unregulated “broker”
Scam riskA website promises guaranteed returns and is not on any regulator’s register. Withdrawals are delayed, then refused.
| Regulator check | Not authorised |
Always verify regulation yourself on the regulator’s website before sending money.
Common broker models
| Aspect | How orders are handled | Main thing to check |
|---|---|---|
| Agency / routing broker | Sends orders to exchanges or other venues | Execution quality and fees |
| Market-maker broker | Often takes the other side itself | Spreads and conflicts of interest |
| CFD provider | You trade a contract with the provider | Leverage, financing and risk warnings. See Contract for Difference |
| Crypto exchange | Broker and exchange in one | Custody and regulation |
What a broker does for you
Market access
Connects you to exchanges and other venues.
Custody
Holds your cash and assets in your account.
Margin
Lends money or securities for leveraged and short trades. See Margin.
Reporting
Statements, trade confirmations and tax documents.
Advantages and disadvantages
Advantages
- Gives individuals access to markets they cannot join directly.
- Provides platforms, data and order types.
- Regulated brokers are supervised and audited.
Disadvantages
- Costs can be hidden in spreads and fees.
- Some business models create conflicts of interest.
- Your money depends on the broker’s safety and rules.
- Unregulated firms and scams are common online.
Going deeper
Read as far as you need. Each level builds on the one before it.
Regulation varies by country
Beginner
The same brand can operate through different companies in different countries, with different protections. Check which entity your account is with.
Payment for order flow
Intermediate
Some brokers are paid by market makers for sending them customer orders.4 This can fund zero-commission trading but raises questions about execution quality. See Payment for Order Flow.
Best execution
Advanced
Regulated brokers generally have to take reasonable steps to get good results for client orders, considering price, cost, speed and likelihood of execution.
Common mistakes
Choosing on headline price only
Compare total costs for your typical trade.
Skipping the regulator check
Verify on the regulator’s own register.
Ignoring withdrawal terms
Check fees and limits for taking money out.
Not reading the risk warnings
Especially for leveraged products.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A broker connects you to markets, holds your account and executes orders.
- Brokers earn from commissions, spreads, financing and fees.
- Check regulation on the regulator’s own register.
- Compare total costs for the way you trade.
- Understand how your orders are handled.
Frequently asked questions
Is a broker the same as an exchange?
How do zero-commission brokers make money?
What happens if my broker fails?
Further learning
- Exchange
Where most orders end up.
- Bid-Ask Spread
A cost many brokers build into prices.
- Order
What you send to your broker.
- Margin
Borrowing from your broker to trade.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Broker (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Investor Bulletin: Brokers’ Miscellaneous Fees (opens in a new tab) Checked .
- Investor.gov (SEC). Investor Bulletin: How to Open a Brokerage Account (opens in a new tab) Checked .
- Investor.gov (SEC). Executing an Order (glossary) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.