Who is a broker and what does he do?
If you decide to trade on the stock exchange, you have two options. The first is to trust the manager. This method is suitable for those who do not have the time or desire to invest on their own. The second option is to do everything yourself: develop a strategy for investing money and take responsibility for transactions.
However, just coming to the exchange and trading on your own will not work. You will need a broker – an intermediary between the investor and the issuer, that is, between you and the company whose securities you plan to buy. A broker is a company that has a license to operate on the stock market and that has the right to deal in securities for an investor.
How to interact with a broker?
Sign a contract with a broker. Read the terms of the brokerage agreement. As a rule, brokers publish a standard contract with tariffs on their website. If the rates and other conditions suit you, you can draw up an agreement at the broker’s office or send notarized documents by mail. Large banks with a brokerage license often offer to conclude an agreement remotely – through a website or mobile application.
Open an account with a broker and deposit money into it. After that, the broker will be able to buy securities for you. If you plan to invest in the stock market for more than three years, it is more profitable to open an individual investment account (IIA), which will allow you to save on taxes.
Open a securities account. The securities you buy must be accounted for somewhere. To do this, you need to open a depo account (an account for recording securities) with the depository. The depository may be a separate company that is not related to your broker. But often, in addition to a brokerage license, a broker also has a depository one and it combines these two functions.
Now you are ready to trade on the exchange – you can give instructions to the broker to buy and sell securities. This can be done by phone, online – using a special program – a trading terminal or through the broker’s mobile application.
The broker, on your behalf, performs transactions in the stock market. In addition to the money for buying securities, a commission is deducted from the brokerage account – a fee for the fact that the broker helps you make these transactions.
With the help of a broker, you can withdraw money to your bank account. They may also charge a fee for this. The broker will calculate and withhold tax on your income. For residents of the Russian Federation (that is, for people who stay on the territory of the Russian Federation for at least 183 days during the year), it is 13%, for non-residents – 30%.
In addition to the brokerage commission, you can expect other expenses for each transaction. For example, increased taxes when investing in foreign securities.
Before accepting an order for an operation, the broker is obliged to warn you about the costs of the transaction – for example, about commissions to the exchange and to the broker himself.
The intermediary must also inform you of the current bid and ask prices for the selected financial instruments. Some securities may turn out to be illiquid – that is, it will be difficult to find a buyer for them at all.
The broker himself chooses the way how to provide you with data on additional costs. It could just be a link to a page on his site. Make sure beforehand that the information is presented clearly and you will be able to quickly understand it.
If the broker does not report all the nuances and you suffer losses because of this, you will have the right to demand compensation for losses, including through the courts.
There are situations when it is important to make transactions very quickly. Then you can choose not to receive additional cost alerts so that the broker will immediately execute your orders. But in this case, it will not be possible to present a claim to the intermediary due to losses that will be associated with a lack of information.