When discussing the stock market, you will often hear two main job titles: broker and trader. Although they may be used interchangeably, the two have different and distinctive roles and the nature of their work differs. Understanding the differences between brokers and traders can help you learn what role each is serving in the world of investing.

  • Stock brokers fulfill trades on behalf of retail clients, while stock traders buy and sell securities on the major markets, including the NASDAQ, New York Stock Exchange, and the London Stock Exchange.
  • Traders are further split into two categories, which are agency traders and proprietary traders.
  • Agency traders work with clients to fulfill their orders.
  • Proprietary, or prop, traders analyze opportunities to invest in various classes of assets and then use their firm’s capital to invest in these opportunities.

Stock Broker vs. Trader

When you are trying to understand the stock broker and trader difference, it’s helpful to better understand what each is trying to accomplish in their role. Traders often work for investment companies and banks, working on behalf of the firm or bank to find new investment opportunities. A trader looks at all types of asset classes and stocks for investments, including commodities, equities, derivatives, and fixed income opportunities.

Differences Between a Broker and a Trader

When evaluating an asset, a trader looks at the investment performance, with a focus on the returns or losses generated in the past. In order to maintain their job, a trader must be a financially savvy investor who is constantly tuned into the shifts and fluctuations in the market. A mistake can cost a stock trader their job, especially if they made a bad decision when investing their client’s money or the firm’s money. Traders must be comfortable making quick decisions about investments, as well as conducting advanced analyses of financial assets and potential earnings.

If you are interested in investing in one of the major stock markets, you may choose to work with a stock trader who can help you make decisions and look for potential stocks to purchase that are showing signs of increasing in the near future. However, you are more likely to work with a stockbroker, who can broker a deal on your behalf. Traders are more focused on making deals that benefit their firms, rather than working with clients. They analyze commodities, equities, fixed income, derivatives, forex, and other assets to craft their own trading and investing strategies.

Stockbrokers generally deal directly with individual clients, buying and selling securities based on the desires of those clients. Some brokers provide financial planning services to their clients as well, assisting with portfolio diversification, advising on real estate or insurance investments, and even shaping retirement plans. Stockbrokers also deal with bonds, equities, mutual funds, and other retail products for their clients.

One key difference between a stock broker and trader is the fact that a broker doesn’t purchase or sell equities on behalf of the firm for which they work. Instead, they focus only on their clients and the needs and desires of each one. Some clients are willing to take more risk, while others want to lessen the risk of losses by maintaining a much more conservative approach to the stock market. Brokers also spend more of their time informing their clients of stock price fluctuations and variations.

Similarities Between a Broker and a Trader

Stockbrokers and traders do share some responsibilities and duties. Both need to perform extensive research in the major markets to make recommendations to their clients or make decisions about how to invest their firms’ funds. In both roles, much of the time is devoted to analyzing performance charts and making fast decisions about when to buy and sell. Making a profit in the stock market is heavily based on timing, so both professionals need to be constantly aware of fluctuations.

Brokers and traders also generally have high energy levels, can multi-task well, and can handle a high-pressure and fast-paced work environment. In both roles, individuals typically have at least a bachelor’s degree, although many have master’s degrees. Traders and brokers also must become licensed to buy and sell assets on behalf of others. If you want to handle your own stock trading tasks, you don’t have to earn a license, but those who want to trade professionally do have to get licensed by the Financial Industry Regulatory Authority (FINRA).

The licensing process for traders involves passing the Securities Trader Representative Exam with at least a 70% score. It includes 50 questions focused on topics like maintaining records, trading activity, reporting, settlement, and clearance. A broker must pass the General Securities Registered Representative Examination, which is 125 questions in length and covers the regulations and rules of the Securities and Exchange Commission rules in more depth. In some states, brokers must also pass the Uniform Securities Agents State Law Examination, which covers various aspects of the major stock markets.

Should I Work With a Stock Broker or Trader?

In most cases, an individual client works with a stock broker to handle the buying and selling of assets on the stock market. It is rare that a stock trader works with an individual customer, as this role is heavily focused on making trades on behalf of a firm. However, you can also handle the tasks associated with trading stocks on your own. Before you start investing your money, it’s helpful to learn more about the stock market from an experienced professional.

How to Get Involved in the Stock Market

If you want to start buying and selling assets as part of your own investment strategy, you have a number of ways to get involved in the major markets. You can work with a broker or financial analyst, who can provide insights into industry trends and advise you on moves to make based on your own goals. If you do choose to work with a professional, it’s important to understand that each takes their own approach to investing. You may want to seek out a broker whose strategy aligns with your goals, including whether you want to take a conservative or aggressive approach to investing.

It’s also important to make sure any financial professional with whom you are considering working is properly licensed and trained. If you are going through a reputable financial planning company or investment firm, it is highly likely that the employed professionals will have gone through proper education, licensing, and training requirements. However, working with an individual who claims to be a broker could be risky as they may not know all the basics of stock trading and could end up leading you into poor financial investments.

You can also buy and trade stocks on your own, which is easier than ever with online tools, apps, and other resources. When investing, it’s also helpful to perform research and stay current with the latest news topics about the companies whose stock you are buying and selling. Major news headlines and press releases could cause stock prices to jump or plummet, so staying on top of these potential changes can help you lessen your risk of major losses and maintain a portfolio that continues to benefit you.

You can also set up alerts to stay apprised of all the latest developments in the stock market. When you hold stock in certain companies, setting up an alert that gives you a notification on your smartphone or sends you an email when those companies are in the news can greatly benefit you and your trading strategy. Consider using the tools available to simplify the process and avoid missing something major.

At Raging Bull, we offer resources designed to help you become a more confident and knowledgeable investor. You work hard for your money, so we want to make sure you know how to make your money work hard for you when it’s invested in ways that can ultimately benefit you financially. We have a team of financial experts who can answer your questions during a free training session, or we offer e-books and webinars designed to give you the information you need to start trading or adjust your trading strategy to earn higher returns.

Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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