Those who wish to buy or sell shares of stock in publicly traded companies do so by engaging a stock broker. The broker receives a commission, and in some cases, a monthly fee for managing the account.
When most people use the term “stock broker” they more than likely are referring to an equity broker. However, there are some differences between the two. Equity trading, which includes hedge funds and day trading, is more correctly viewed as a subset of traditional stock market trading. Equity brokers generally deal with individuals who want to invest more aggressively or who may have intricate trading strategies they want to implement. Minimum investments are typically high, and fees can be as well.
An equity broker will normally perform more extensive market research, and equity firms often have extensive, proprietary systems for trading. Many firms devoted to equity trading are established as hedge funds and lie within major investment banks.
Hedge funds are quite different from the traditional approach to investing in the stock market or mutual funds, which is to buy shares and hold them for a considerable amount of time. Hedge funds are usually very active, and often the fund manager will take huge risks which can pay off in the form of huge profits or losses. In addition to investing in stocks and bonds, hedge funds may also speculate on foreign currency or potentially any other investment that is included in the plan or strategy.
You can also find equity brokers in firms that specialize in day trading. These private equity firms make their money by allowing select traders access to funding by the firm. Some will require that traders use the investment strategy developed by the firm, while others let the investor choose the strategy as long as their choices are profitable.
Equity brokers can be found at many different types of investment firms. The expertise of the investor, and his comfort level with risk, should determine the type of equity broker he selects.
Full service brokerage firms will usually have equity brokers on staff to assist those investors who want to take a more aggressive approach to investing. These firms offer a more “hands-on” service to the client, performing market research, monitoring accounts, and dispensing advice. Naturally, their fees and commissions will be among the highest.
Many online equity brokers offer investors the ability to choose their own investments and strategies. Establishing an account with this type of broker is usually quick and easy. You can enter your trade orders 24 hours a day, 7 days a week, although they cannot be executed until the market opens.
Due to the fact that equity brokers typically make many more trades than those who buy and sell for investors who are holding for the long term, fees can mount quickly. It is not uncommon for investors to find that one-fourth to one-third of their profits have gone to the equity broker or his firm. Investors should perform their due diligence on all investment opportunities, but with the fast-paced nature of equity trading, it is even more critical to do so before making the investment.