Sunday, April 26, 2009

broker and dealers

when a security is sold, many people are likely to be involved. Although it is possible for two investors to trade with each other directly, the usual transaction employs the services provided by brokers, dealers, and\or markets.
A broker acts as an agent and is compensated via a commission.Like a marriage broker or real estate broker, an investment broker tries to bring two parties together and to obtain the best possible terms for his or her customer. Most individual investors deal with brokers in large retail or "wire"house--firms with many offices connected by private wires with their own headquarters and, through the headquarters,with major markets. The people in brokerage firms with prime responsibility for individual accounts are termed account executives,registered representatives,or(in the vernacular)customer,s men and women.
institutional investors deal with both large firms offering retail brokerage service and smaller firms that maintain only one or two offices and specialize in institutional business. There are also regional brokerage firms and discount broker. The former concentrate on transactions in a geographic area;the latter provide "bare-bones"service at low cost.An account executive,s compensation is typically determined party by the amount of commissions paid by his or her customers--an amount that is usually greater,the greater the turnover in an account. This provides some temptation to recommend changes in investors holdings and,since the commission rates on various types of investments differ,to recommend particular types of changes. In the long run,account executives who encourage excessive churning should lose customers. Nonetheless, such behavior may be advantageous for them in the short run.

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