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Are you considering a career in finance and are wondering what a stockbroker does and what the requirements are to become one? Read on to find out.
A stockbroker is an individual or firm that buys and sells stocks, bonds, mutual funds, and other securities on behalf of clients as part of an investment portfolio, typically for a commission.
They must be licensed and regulated by the financial authority in their jurisdiction.
What Does a Stockbroker Do?
A stockbroker typically works for a brokerage firm or investment bank and has expert knowledge of the financial markets and products.
Stockbrokers are responsible for researching investments and advising their clients on the best investments for their goals and objectives. They also assist their clients with opening investment accounts.
Additionally, stockbrokers provide their clients investment advice on managing their portfolios. They may also provide financial planning services through an investment advisor or financial advisor to help their clients achieve their long-term financial goals.
Stockbrokers are regulated by the SEC and must pass licensing exams to become certified.
Requirements for Stockbrokers
What does it take to become a stockbroker? A potential stockbroker must pass several exams before they can make trades on behalf of clients.
Stockbrokers also need strong interpersonal skills, a knowledge of the financial market and a desire to help others make money in the stock market.
While requirements on the educational side tend to be looser than the regulatory side, it’s generally encouraged for would-be brokers to at least have a bachelor’s degree related to financial studies, such as economics, finance, business administration or statistics.
A master’s degree is also strongly encouraged, and quality stockbrokers use the analytical skills they gained during college to help them become better broker-dealers.
On the licensing end of becoming a stockbroker, a would-be broker must have a license and a passing grade in the Series 7 exam from the Financial Industry Regulating Authority (FINRA) before making trades.
To become a broker, you must have worked for your registered firm for at least four months to qualify for the Series 7 exam. The exam consists of 125 multiple-choice questions, and you must score above 72 percent to receive a passing grade.
The Uniform Securities Agent State Law Examination is also required in most states. This exam assesses your knowledge of the securities industry and adequate record-keeping.
Furthermore, you may need to obtain a license to perform specific activities for new clients or sell certain items and services.
Stockbrokers, on average, earn around $76,000 with the potential for more. But, of course, stockbrokers can make more money depending on several factors, such as if they work for a full-service brokerage, investment firm or even the New York Stock Exchange.
Other factors, such as commission rates, also apply in this scenario. Financial professionals’ success fluctuates with the market. Many of the highest-performing stockbrokers live in cities such as New York City, Chicago and London.
Considering these are major financial cities, this is not a surprise. In New York City alone, stockbrokers make over $89,000 on average. However, considering the high cost of living there, any potential money to be made will likely go toward living expenses.
Types of Stock Brokers
The job of a stockbroker can depend on the employee’s position in a firm. So, let’s take a look at the three different types of stock brokers:
- Full-Service Broker: If you’re seeking a one-stop shop for all your individual investor needs, a full-service broker will become your new best friend. These brokers take care of nearly every investment need, from retirement planning, serving as your financial adviser and being a registered representative of your stake in the stock market.
- Discount Broker: A discount broker takes care of stock orders at a reduced commission. They do not provide investment advice and are not likely to be as educated on items as a chartered financial analyst might be.
- Online Broker: An online broker is usually a type of broker that deals with investments that are conducted entirely online using a specific trading platform such as Robinhood or E*TRADE. These are not financial planners or sales agents.
How to Become a Stockbroker
It might be easy to think of a stockbroker as someone who sits in an office on cold-calling floors all day, but that’s not the case. Instead, becoming a stockbroker starts with having a knack for finance and a passion for helping others succeed in an increasingly difficult-to-navigate market.
If this sounds like you, you’re already on your way to a dream profession. Becoming a stockbroker begins with earning a bachelor’s degree in something related to finances or the market.
Degrees in accounting, finance, business, economics or statistics can lay a firm groundwork for your chosen profession. Once you have completed a bachelor’s degree, you must also obtain a master’s degree in Business Administration.
Your master’s degree shows you have not only done your homework regarding the market but have also made it your calling.
A master’s degree also shows initiative and a drive to become a capable and knowledgeable member of the high finance world.
After finishing school, you will want to lean on any networking or interning you completed during your studies. These relationships cultivated in the finance world through brokerage firms or even on the stock market floors can help you find your first job.
While learning the ropes, you’ll want to begin studying for the various qualification exams that test your understanding of stock market concepts, government regulations, ethics and advanced money management.
At a minimum, you need to pass the Series 7 — General Securities Representative Exam to make trades. After passing the qualification exam, you can begin applying for various internships for stockbroker positions.
Internships allow you to gain real-world work experience in financial services and managing basic or complex portfolios. Becoming a stockbroker can be stressful and difficult for those who cannot quickly make complex decisions with the market moving at a fever pitch.
For those who can, a whole new career path awaits.
Is Becoming a Stockbroker Worth It?
If a high-stress, high-risk and high-reward environment is something you thrive in, then becoming a stockbroker is more than worth it. A successful stockbroker is often the key to a robust retirement thanks to cunning Wall Street maneuvers or safe stock trading.
Let’s take a look at some commonly asked questions about stockbrokers.
How do stockbrokers make money?
Stockbrokers typically make money based on commission. The commission varies across member firms, but the percentage is calculated from the value of the stock purchase.
What is the difference between a stockbroker and a broker?
A stockbroker is a middleman between an investor and a stock exchange. A broker takes a customer’s order and attempts to fill it at the customer’s best value.
What are some of the risks of being a stockbroker?
Any time money is involved, risk is soon to follow. Being a stockbroker exposes you and your clients to risk every day.
If you make a good trade, then you and your client will benefit as a result.
What are the best companies to work for as a stockbroker?
According to Glassdoor, many larger firms, such as Merrill Lynch, Charles Schwab, and Wells Fargo, are the best companies to work for as a stockbroker.