Broker or Trader: In What Lies the Difference?
Beginners who only start their journey in a trading career often get confused by terms trader and broker. Of course, there are some similarities between these concepts as they both belong to the area of stock trading. However, the difference is still significant. To understand the nature of these careers better let’s first see what they do and how they make money.
We are not going to stuff you with the financial terminology as it may confuse you even more. Our goal now is to help you decide what career path suits you best – broker or trader.
What is a Trader’s Mission
In a narrow sense, a trader today is the one who makes online trades on the exchange. He can trade independently as a businessman using own money or with investors’ money. Also, having financial education he can work as a hired trader, for example in a bank, and receive a salary:
a trader makes deals with employer’s money → employer gets all the profit → trader gets wages
However, in some cases traders can work as an employee and at the same time receive a percentage from the profit, making own money.
Most traders work today as freelance businessmen, investing and risking own money. They do not rely just on luck but on knowledge, professionalism, and self-control.
In a broad sense, a trader is a person that earns on natural difference in price, that’s formed without his personal involvement. In other words, he gets profit on price increases occurring without added value formation.
So, roughly speaking, traders are those guys who buy and sell different currencies, cryptocurrencies, stocks, futures, options, metals, and other goods on the exchange. The main task for a trader is to buy goods at the lowest price and then sell it at the highest. And since the price movement is independent of the trader’s engagement, their work is not quite as simple as it may seem.
Almost everyone can become a trader, but not everyone is professionally suited for trading.
If you are preparing to take a trader role as the main profession, you’d need to learn as much as possible about financial markets. Watching financial news on CNBC or reading “The Wall Street Journal” or “The Financial Times” can be the best training guides for starters.
Summing up, we can highlight the following:
- trader is mostly an independent market player that makes decisions by himself;
- trader must have a financial background to be able to analyze the market news;
- trader is ambitious, alert, detail-oriented, sociable and is ready to risk.
If by reading this you think “Woah, that’s just for me”, then the ball’s in your court. Invest some time to train your skills to become a top trader – thank God, there are various trading platforms with demo account available.
What is a Broker’s Mission
A trader cannot simply buy or sell goods without a special sales agent, which is called a Broker.
A broker is an employee of a brokerage company that concludes buy/sell transactions in the financial markets on behalf of a trader. Broker doesn’t use shareholders’ funds, but performs intermediary services by connecting traders with the market and earns for a living through commissions and fees from transactions.
Note, that it’s only traders who invest money in buy/sell. Not brokers nor the exchange.
So, the main trader-broker difference is that the first one makes money on price fluctuations while the second one by providing intermediary services. That means if a trader loses by making an expensive purchase and selling cheap, a broker still wins since he will receive his percentage for the transaction anyway.
A broker is the one who supports a trader along the way of making a transaction.
But thanks to the exchange broker’s task is highly simplified since there are thousands of thousands of currency traders. It is a place where sellers and buyers meet and a broker acts as a link of transaction. Just imagine the exchange owners organizing transactions between individual traders… They could have gone crazy if there were no brokers!
However, if any market geek can become a trader, you’d need a special license for brokerage activities. To enter the stock market, you’d need Financial Industry Regulatory Authority license (FINRA, or formerly NASD) which gives you the right to buy and sell stocks, bonds or other securities.
Many brokerage and investment companies accept candidates without a license, conduct training and courses and pay fees for them to pass the necessary exams.
The working day of a broker is kind of intense and diverse. Many brokers love their job and choose it as a mainline of business. So if you like being busy, and you’re nuts at sales and finances then the broker career may be a good suit for you.
Now let’s sum up all pieces and highlight the following differences between brokers and traders.
Key Differences Between Traders and Brokers
- The initiative to sell and buy currencies (or other commodities) comes from a trader, while a broker provides intermediary services only.
- Traders earn on the price difference, and for this very reason, it’s super important for a trader to buy goods at a low price and sell it at a high price to get profit. Brokers earn on the percentage of the trader’s transactions volume. Therefore, the broker only needs traders to trade – and trade big – no matter how successful the trading is.
- In case the trader fails to sell at a higher price, it will lead him to losses. And since brokers earn on the percentage of the transactions, they don’t care much about traders’ professionalism. They are ready to support market newbies: be it a student or a golden-ager.
- Since brokers have a large supply of foreign currencies to ensure liquidity, traders do not compete with each other to buy faster at a better price. In turn, there’s fierce competition between brokers for attracting market players as their income depends on the number and volume of traders transactions.
The key to winning in this battle is a modern, user-friendly and multifunctional trading platform and a successful marketing strategy.
Here, at Fintatech Company, we’ve been helping dozens of brokers to build innovative web-based trading platforms and exchanges that won their market share and attracted millions of traders. For 13 years team’s been exploring the industry’s ins and outs and we want to deliver our knowledge, experience, and resources to create products of wide-range powerful capabilities.
Today we provide ready-to-use, flexible trading solutions for brokerage, such as trading platform, charting components, and data-server solutions. Check out our free Trading Platform Demo and see what can you get (or better!). Do not hesitate to contact us at email@example.com
Since all traders are in the same boat, you can easily access forums where they share the secrets of successful trading but brokers never reveal their secrets. Therefore, broker-dealers try hard to create good working conditions for traders (training materials, minimal commissions, different ways of entry and exit, etc)
So, if you are wondering about broker vs trader salary, note that the broker is guaranteed to receive income regardless of the trading results. A trader makes a profit if he will use the correct strategy matching market trend.
Still, both traders and brokers can make a pile of money so it’s more about personal chemistry, brains and desire to make a profit.
Basing on the said above, we can say that both a trader’s and a broker’s careers are no boring stuff to do.
The main reason people want to dive into financial environment is, of course, money. But besides you’d need to have a passion for market movements, investments and have a flexible mind.
If you are active and easy to get on with people then broker path may be a right turn for you.
If you are a nerd at math and love to analyze, then trader’s career more fits your vocation choice.
Whatever you prefer the most, be ready to enter the fast-paced and challenging workplace, because dealing with money is no easy job.