Share Company or Share Broker is a person or firm who execute buy/sell order on behalf of the investors and charge a commission for rendering the service. They are one of the most important constituent of the whole share dealing process. Any investor has to place an order through a recognized share company of a stock exchange.
In a stock exchange it is not permissible for a general customer to trade shares directly with another customer. Here the contracts are standardized ones and the customers are required to register themselves with the stock exchange through the share broker members. The actual transaction is done not between the customers but between the registered members of the exchange. The transaction between the Share Companies of a stock exchange takes place on a net basis where the stock exchange itself acts as the counter-party to every transactions.
Share Company or Share Broker also provides many value added services to its customers such as :-
They give advice to their clients about
which shares to buy,
the price around which to buy, and
the target price around which the share can be sold
time frame of holding of the share
Portfolio Management Service (PMS)
The share company takes a lump sum amount from their customers and trade with that money in their own account by the help of a knowledgeable and experienced fund manager. The return rate in this case is generally much higher because the fund is being managed by an experienced fund manager. Thus, the commission charged by the share company is generally higher because here the whole headache of investing, making profit, and employing a fund manager is borne by the share broker only. Share Broking Company offers two types of share trading facilities :-
(a) Offline Share Trading In this form of trading the customer
either goes to the share broker's place and sits before the share trading terminal and asks the
dealer to place orders in his account or rings the share broker, asks the share quotes and other relevant informations, and accordingly places orders over the phone.
(b) Online Share TradingThe client could avail the share market and could place his order on his own from any place he wants, provided he has a computer with an internet connection.
Share Companies are of various types varying with the mode of services provided by them. Different types of Share Broking Companies are :-
1. Floor BrokersThese share brokers place and execute orders on behalf of their clients (who are not allowed to the trading area) on the floor of the exchange.
2. Upstairs BrokersThese brokers locate counterparties (out of their known traders) and negotiate trade terms with them on behalf of their clients (who are usually heavy-weight ones). They then execute the transaction at a rate better than the market rate and also at a less time.
3. Discount BrokersThese share brokers charge less commission than the full service brokers but at the same time don't give any investment advice to their clients.
4. Value BrokersThese are a type of discount brokers who charge commissions at a percentage rate of the currency value of each transaction. This is typically helpful for the small traders who generally trade in small quantities and generally invest in low-priced shares because the brokerage costing is relatively less.
Thus the Share Company or Broker is an inherent, essential and inevitable part of the share trading system without whom the trade cannot be placed or executed.