Broker
Family X · Account mechanics
Not to be confused with forex broker, cfd broker, white label forex broker.
Broker is the general term for a firm that stands between a client and the market, receiving orders and arranging their execution. The legal relationship, the way orders are routed, and the compensation model vary by jurisdiction, asset class and licence, so the label covers a wide range of businesses. What they share is the function of order handling rather than any single business model.
How a broker operates
A broker receives an instruction from a client and arranges for it to be filled. Two broad models exist. In an agency model the broker passes the order to an external venue or counterparty and charges a commission. In a principal or dealing model the broker itself takes the opposite side of the client's trade, earning from the spread or a markup rather than a separate commission.
Execution quality, custody arrangements, leverage limits and compensation are not fixed across the industry. They depend on the licence the firm holds, the country it operates in, and the asset class involved, so the same word describes firms with materially different obligations.
Worked example: commission versus spread
A client buys 10,000 units of an instrument quoted at 50.00 / 50.05.
Under a dealing model with no separate commission, the same trade would cost only the spread of 50.00, assuming the quoted spread is unchanged.
What the term does not specify
Calling a firm a broker says nothing about whether it is regulated, whether client money is segregated, or whether it is permitted to hold retail clients' funds. Those details sit in the licence and the client agreement, not in the word itself. A firm described as a broker in one jurisdiction may be classified as a dealer, an investment firm or a counterparty elsewhere.
Often confused with
- forex broker
- A forex broker is a broker whose activity is confined to currency pairs rather than financial instruments generally, so the visible sign is that its product list contains only FX pairs.
- cfd broker
- A CFD broker is a broker that offers contracts for difference, which are derivative positions that do not involve delivery of the underlying asset, so the visible sign is that the instrument list is dominated by CFDs on shares, indices or commodities.
- white label forex broker
- A white label forex broker is a firm operating under another company's trading infrastructure and brand rather than its own, so the visible sign is that the platform, pricing and back office are supplied by a third party named in the legal documents.