A brokerage connects buyers and sellers in markets and may also manage money or offer financial advice.
What is a brokerage?
An investor trying to sell an investment may have difficulty finding a buyer. A couple reasons include the lack of communication with other investors and the volume trading on a market exchange. Brokerage companies connect buyers and sellers to make it easier to place financial transactions. In return, brokerages may charge a commission or fee, sometimes as a percentage of the trade amount or a fixed, flat rate.
There are three common types of brokerages: full-service, discount, and robo-advisors. A full-service brokerage often includes other services like money management, financial advice, tax advice, and estate planning. Because they offer more services, this type of brokerage tends to charge higher fees. A discount brokerage is like a full-service brokerage, but the main difference is they usually charge little to no fees when placing transactions. They usually don’t provide the services offered by a full-service brokerage. Robo-advisors use built-in algorithms to recommend investments and offer advice to investors. They’re usually less expensive than full-service and discount brokerages.