Brokerage firms facilitate the trading of stocks, commodities and currencies by providing opportunities to the interested sellers and buyers for a specified fee. These firms also provide borrowing facilities against an underlying asset to enhance liquidity in the markets and to spur trading.
Brokerages are required to register with a recognized exchange, such as the New York Stock Exchange or NASDAQ. Exchanges are meant to regulate trading in their role as the guarantor of final settlement between a buyer and seller. Further, exchanges also regulate trading to ensure that the game is played by the rules. Therefore, exchanges and brokerages inspire confidence in traders and in turn ensure smooth functioning of the markets.
Big banks, hedge funds, mutual funds and insurance companies are key players in the financial markets. Banks usually play a key role in currency markets, where the private players are not allowed to buy and sell currencies directly from the open markets. Banks also act as stock brokers in addition to investing money in the markets. Banks may also be active in the trading of commodities like gold and silver on exchanges.
With the advent of internet-based exchange trading, the brokerage business is growing at a fast clip. With online discount brokerages such as E*Trade, anyone interested in “day trading” can log in from anywhere and begin to trade, provided that they have access to the Internet. This increased access to the markets has in turn led to a phenomenal increase in exchange-based trading transactions, particularly by small players who had limited access before the arrival of web-based trading. The trend is often seen wherever small players are allowed to participate in trading, and has been hailed by many as the “democratization” of the financial markets.