What Is a Broker and How Do They Work?

This article was published as of May 23rd 2025.

When investing in the stock market, there are a few items that you should be aware of. In this article, we will discuss the broker's role, its types and what you need when choosing one.

What is a Broker?

A broker is a crucial financial intermediary, typically a company, that facilitates buying and selling orders in financial markets on behalf of clients. Brokers earn a fee for their services.

In financial markets, individuals or entities must use intermediaries to buy and sell assets, as securities exchanges only accept orders from individuals or firms that are members of that exchange. Brokers are, therefore, these intermediaries, which execute the orders on behalf of their clients. They are registered and licensed entities operating within regulatory frameworks to ensure market integrity and client protection.

Many brokers also offer a range of tax-efficient products, prompting comparisons like stocks and shares ISA vs cash—a decision investors face when weighing the potential returns of market-based investments against the stability of cash savings within an ISA.

Types of brokers

In financial markets, brokers serve as middlemen, placing trades on behalf of their clients. The services they provide can vary significantly, and as such, brokers are typically divided into two broad types:

• Discount brokers – Primarily focused on executing trades, these brokers usually operate online and charge lower fees, making them a popular choice for hands-on investors who prefer to manage their own investments.

• Full-service brokers – These offer a comprehensive service, including trade execution, personalised investment advice, and broader financial planning support.

Discount Broker

A discount broker is a type of stockbroker that carries out buy and sell orders at a lower cost than traditional full-service brokers. Unlike full-service providers, discount brokers typically do not offer investment advice or in-depth market analysis. With the rise of the internet and digital communication, discount brokers have become increasingly common, giving retail investors—particularly those with smaller portfolios—affordable access to financial markets through online platforms.

Discount brokers are often synonymous with online trading platforms, forming a key part of the fintech landscape in the UK.

Key features of discount brokers:

• Lower fees: As they do not provide tailored advice or research, costs are kept low.

• Primarily online-based: Most operate via digital platforms, reducing overheads.

• Geared towards self-directed investors: Ideal for those comfortable making their own trading decisions.

• Advanced trading tools: Platforms often include live charts, order tracking, and real-time data.

• Suitable for frequent traders: Especially those with smaller portfolios who don’t need extensive support.

Full-Service Broker

A full-service broker is a regulated financial firm offering a broad range of services, including investment research, financial planning, tax guidance, and retirement advice. These brokers charge higher fees than discount brokers, reflecting the more personalised support they provide. Full-service brokers are suited to individuals who prefer professional guidance or lack the time or confidence to manage their investments independently.

Key features of full-service brokers:

• Comprehensive financial services: Including portfolio construction, estate and tax planning, investment advice, and access to IPOs and global markets.

• Higher fees: Charges are greater due to the breadth and depth of services offered.

• Dedicated support: Clients receive advice from personal brokers or financial advisers.

• Proprietary products: May include in-house investment funds, insurance, lending products, and managed portfolios.

• Physical branches: Many firms maintain offices where clients can book face-to-face consultations.

• Potential conflicts of interest: Some advisers may have incentives to promote certain products, which could lead to higher costs or unnecessary trading activity.

Main differences

Broker Regulation UK

Securities brokers register with the Financial Conduct Authory (FCA), the financial authority in charge of approving financial entities to provide services. This information is key to understand as, if a broker is not registered within the FCA, it is not supposed to be serving UK residents. Before Brexit, it was allowed to be registered within one of the EU regulator such as the AFM in the Netherlands, BaFin in Germany or CNMV in Spain as it was allowed to service among the whole EU.

By being registered within the FCA, the broker is expected to follow specific guidelines to protect the investor interests and, due to this fact, allows to protect the investments via the Investors Protection Scheme such as the FSCS (Financial Services Compensation Scheme).

Differences between broker, trader and dealer

Key differences between a Broker, Dealer and Trader:

How to become a broker?

Many people are drawn to the profession of a stock broker due to portrayals in movies like "The Wolf of Wall Street" and "The Big Short." However, the reality of the profession can differ from these depictions. To become a stockbroker professionally, one must follow specific steps.

First and foremost, one should pursue academic training, primarily in fields related to economics, finance, or engineering, which are relevant to the responsibilities of a stock broker. Specialised master's degrees or financial certifications like the Chartered Financial Analyst (CFA) certification can enhance one's qualifications and prospects in the industry. While formal education is valuable, exceptions do exist, and individuals with exceptional skills and aptitudes may still find opportunities in the field.

What should I consider when choosing a broker?

When choosing a broker in the UK, it's essential to ensure they are authorised by the FCA and your funds are protected under the FSCS, offering up to £85,000 in compensation. Pay close attention to costs such as trading commissions, account fees, and inactivity charges. While low-cost platforms appeal to many, full-service brokers may offer better research tools and support.

Consider the range of available assets—UK and global stocks, ETFs, forex, and more—especially if diversification is your goal. Platform quality also matters; reliable execution, charting features, and mobile access can greatly enhance your experience. The choice of account types is equally important—particularly when weighing up SIPP vs Stocks and Shares ISA options for tax efficiency.

If that’s a priority, don’t miss our guide to the best Stocks and Shares ISA providers for UK investors.

FAQs

What is a broker and why do I need one?

A broker is a financial intermediary that facilitates the buying and selling of financial assets like stocks and bonds on behalf of clients. You need a broker because regulations require individuals to use licensed intermediaries to trade in financial markets.

What are online brokers, and why are they popular?

Online brokers are traditional brokers who provide a digital platform for executing trades. They are popular due to the convenience and accessibility they offer to investors, allowing trades to be made from anywhere with an internet connection.

How do brokers make money, and will their fees eat into my profits?

Brokers earn through commissions or fees for executing trades. While fees can affect returns, a skilled broker's advice can lead to better investment decisions, potentially outweighing the costs.

Can I trust my broker with my financial information and investments?

Brokers are regulated by financial authorities, ensuring they adhere to strict security and ethical standards. Choosing a reputable, licensed broker is key to safeguarding your financial information and investments.

What types of accounts can I open with a broker?

Brokers typically offer various types of accounts, including Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs), and standard trading accounts. Each type of account offers different tax advantages and investment options.

Can I use multiple brokers for my investments?

Yes, many investors use multiple brokers to diversify their investments and take advantage of different services, fee structures, and investment opportunities each broker offers.