A Forex broker or Stock broker will be of great importance to you In every investor’s life the “broker” is a figure of prime importance. It is through him that all securities transactions are handled; there is no way you can buy or sell stocks listed on any national exchange except through his services.
In the trade, he is known as a registered representative, a title that has now supplanted the old designation, “customer’s man.” He is a registered employee of a brokerage firm, preferably one which is a member of the New York Stock Exchange. He is not a broker as such, but is the liaison between you, the customer, and the firm’s commission broker who executes orders on the exchange floor.
What He Does
The representative’s job is to extend to investors all the services of his firm. He will, first of all, transmit your orders to buy or sell securities stocks or bonds, listed or unlisted (over-the-counter), domestic or foreign, in round lots, odd lots, or piecemeal through the Monthly Investment Plan. He will also buy or sell rights or warrants which, in simplest terms, are options to purchase a certain number of shares of a stock issue. He will arrange the purchase or sale of commodity futures grains, coffee, cotton, soybeans, whatever you are interested in.
He will place any type of order you specify: at the market, limit, stop. He will buy on margin or arrange a short sale.
He will be available for consultation on the merits of particular stocks or industrial groups, or for analysis of your entire portfolio. He will supply stock studies, newsletters, market analyses, and whatever other literature his firm issues. He will hold your securities for you in the firm’s vault, collect your stock dividends or bond interest, and send you a periodic statement on any shares held for your ac¬count.
His fee: the standard commission you pay on the purchase or sale of securities. There are no other charges for his services (although you will pay interest, naturally, on money you borrow from him for a margin purchase).
What He Doesn’t
Your representative will not and should not serve as a stock market tout or tipster. Unless you request him to, he will not volunteer advice on buying or selling. He will not choose for you between two stocks that seem equally attractive. He will not hustle you into the market and then sell you out; the fast turn-around is not his way of doing business.
What a Brokerage House Is Like
Brokerage houses are pretty much like offices everywhere, except for the presence of the fascinating paraphernalia of the market. The customers’ room in the usual large brokerage house has a quotation board on one wall. The arrangement of items may vary, but basically they all offer the same data.
For each stock listed—and it is a pretty large board that shows much more than the leaders in any particular group— the quote board will indicate the present and past year’s high and low, the previous day’s opening, high, low, and closing prices, and the successive prices of the current day’s sales.
There may also be a panel of commodity prices. Very likely there will be either a ticker machine or a projection of its tape on a screen which enlarges the figures sufficiently for them to be read across the room. There may also be a Dow-Jones ticker which taps out news, statistics, and whatever economic and financial information the extensive D-J organization may dig up.
Generally, chairs or benches are ranged in front of the quote board so that customers may take their ease while learning what the new day brings.
This is all for your convenience. Of course, you can get the same information simply by phoning your broker, but his office welcomes your visit.
What you do not see is your firm’s research department, accounting department, and vault—though you can if you wish. The research department consists of a staff of securities analysts who study and report on the performance and prospects of various stocks. Many analysts hit the road frequently to examine companies firsthand.
Some specialize in oils, others in railroads or utilities. Much of their work is continuing study of one company after another, but they are also available for specific analyzes at a customer’s request. (No one will do a special run-down on duPont to see whether you should buy 10 shares, however!)
The accounting department is, of course, responsible for keeping track of the thousands of transactions completed, and for maintaining records of each customer’s position.
Many brokerage houses are also investment banking firms, prepared to share in underwriting new securities issued by companies seeking more capital. As will be explained in more detail further on, a company issuing stock does not sell directly to the public. It sells the entire issue to a syndicate of underwriters, which resells it at a small mark-up, or “spread,” to the public.
In this case, no commission is charged because the broker’s expenses and profit on the distribution are included in the premium you pay. (When 10.2 million common shares of Ford Motor Company were issued in 1956, the largest distribution in financial history, they were sold to a syndicate of more than 700 underwriters at $63 per share.
The price to the public was $64.50 per share or a spread of $1.50. As spreads go, this was very small—even though it meant a total of $15,300,000 to the syndicate.)
Brokerage houses may also “take a position” in a stock. This simply means that partners or officers, or the brokerage company itself, may follow their own advice and buy one stock or another. Since the subsequent performance of these stocks may depend on how many other people become interested in them, brokerage houses scrupulously report their holdings to the public.
As a customer, you can then decide whether Blank stock is a good buy because your smart broker has a piece, or whether his report on Blank is tinged with undue enthusiasm because he holds it.
If you are using a Forex broker he will be doing a similar job for you, but he will sell you the currency pairs you are interested in.