Banking broker is an interesting type of brokerage. Here, the brokerage firm is owned by the banks. The banks own the brokerage firm mainly because of the reason that they can act as brokers as well. They can withstand all types of market fluctuations since they have many resources to rely upon. The banks execute the transaction of its customers just like a discount brokerage firm. That is why banks are considered as brokerage firms. Banks act as brokers mainly for the reason to increase their profit and it is better and beneficial for them than the individual brokerage firms since banks cal rely on lot of their resources.
However not always do they act as brokers. They act as dealers too.
It is important here to note that there is a difference between a broker and a dealer. A broker acts as an intermediate between the buyers and sellers. The broker does not participate in trade but simply conducts the trade. Whereas in case of a dealer the buyer does not know anything about the seller and the seller too does not know anything about the buyer. The dealer is the one who trades with both the party and gain some profit out of the trade. Here trade is not transparent.
When the trade is carried out on behalf of the bank as an entity, we call them dealers. Hence when they conduct an individual’s transaction, they act as a broker and when they conduct trade on behalf of the bank, they act as dealers. Thus in either way they are benefited. This gives in way for many chances of profit. So now we know why we call banking brokers as both brokers and dealers. It all depends on what they do in a particular trade.
As we already know, big banks have lot of resources. They have more money than a brokerage firm. Hence they need not worry much about the outcome of the trade since they can withstand any market fluctuations and face any trouble in the trade. Hence the loss during the dips in market is relatively less when compared to the other brokerage firms to suffer great loss in the bear market. This is why investors find banking brokers more advantageous. In bank brokers you can have more security than other brokerage firms. Your trade or the investment that you make is safe when you do it under a bank broker. Yet for a significant return of the money invested, investors go for individual brokerage firms.
Thus if you are an investor that worries more about security than profit, you can go for bank brokers. On the other hand if you need profit, you might just go for individual brokerage firm. It all depends on what you need. When you choose banking broker just be clear with your reasons.
Unlike an individual brokerage firm, bank brokerage firms needn’t reveal their markup. They may increase and decrease the amount of security transaction. But in case of other types of firms the broker has to report the commission earned in a trade. Brokers don’t do anything with pricing. They simply conduct trade.
Banking brokers are more secure and reduce risks in investments. Anyone who needs protection than profit would choose banking brokerage firms. In most of the cases, Banks are more profited than the clients when brokerage firms are owned by Banks. But still banking brokers are chosen for the reason of security. This is because People are more into the protection factor than the profit factor. Having a secured investment is all that most people prefer.