You have heard about the above two terms. They are very common. Since they are linked to each other, people often get confused between the two. Here is my take on the difference between both of them.
All brokers are agent but not all agents are brokers.
Being an agent is a universal concept. It can be applied anywhere and to anyone. Agent is a person who has been appointed by another person to represent the appointer in any activity on the appointer’s behalf. Agent can represent the principal party during their absence or any other reason.
An uneducated man wants to invest in shares. He has no clue about any process or formats. So, he goes to a person who has a firm and tell him to act as an agent for him. So, the agent will carry all the process of investing in shares on the behalf of the uneducated man.
A broker is a person who has been authorized by the stock exchange to buy and sell shares for their clients. Broker pays a fee to get licence from the stock exchange. This licence comes at a high price, so not everyone can afford it. The sole purpose of broker is buy and sell shares. But now, many brokers have also started advisory services for their clients. The client can opt for these services by paying a fee to the broker.
Now, there are two types of broker: Discount broker and Full Service Brokers. Discount brokers are the ones who offer only buying and selling of shares. Zerodha and Upstox are examples of discount brokers. Full service brokers are those brokers which offer a wide range of service such as stock trading, research advisory, portfolio management, etc. HDFC Securites and ICICI Direct are examples of Full Service Brokers.
Now, the full service broker plays two roles here: being a broker and an agent. We will take HDFC Securities as an example. In a trade between you and the stock exchange, HDFC Securities will act as your agent and represent you since you can’t directly trade with the stock exchange.
Another example is that, lets divide the role of HDFC Securities into two part: Trading and Advisory. Here, when you make a trade, HDFC Securities is your broker. But when you ask the team of HDFC Securities for stock recommendations or portfolio management services, then HDFC Securities will act as an agent for you and offer you services.
An agent can only advise you what to buy, hold or sell, but a broker can do and settle transactions for you as well as it can act as an agent and advise you about stock recommendations.
So that’s the difference between stock broker and an agent.
Finance graduate with a strong desire to understand the complexities of financial markets. I make financial judgments for my investments based on the information I gained during my academic education. I write articles about financial literacy for dstreetanalyser.com in order to promote financial literacy among the general public.