A brokerage firm is an entity that is associated with a stock exchange and takes on custodial responsibility for individual investors’ funds for buying and selling of securities and maintaining compliance with the exchanges. An individual investor would use a brokerage firm to buy and sell securities such as stocks, bonds, futures, and commodities on the respective exchanges.
A prospective investor would need to open up a brokerage account in order to buy and sell the various securities through the brokerage firm for securities on a respective exchange.
In order for the brokerage firm to do business with an exchange they normally have an association with the exchange such as owning a seat on the exchange, or, the brokerage firm uses another firm to filter trade orders through a company that does have an exchange seat.
Opening a brokerage firm is no more extensive than open a bank account, and is very similar in nature.
Is a brokerage account absolutely necessary?
Some companies would allow you to buy or sell their respective stock via the company directly. A company may do a Initial Public Offering, or, IPO, through an exchange. But, a company may also do a Direct Public Offering, or, DPO, where they sell shares to individual investors straight from the company. This is legal and the policies of any one company depend upon the individual company as well as the state that the company is registered with, as well as certain Securities & Exchange Commission rules.
Your point of contact with any company would be the respective company’s investor relations department.
What to Know Before Opening a Brokerage account
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