Types of Stock Brokers

There are broadly three different classifications of stockbroker services offered by a range of different brokers, and the costs involved with trading at each stage will be relative to the amount of input required from the broker.

Execution Only Stockbroker

Typically the most common type of brokerage service online, execution-only brokers simply carry out your trading instructions, and represent the lowest cost option for investing. They have no advisory role, even if they think you're buying a dud, and will usually steer entirely away from anything other than simply processing a transaction. Because of the mass market style of these kind of services, the majority of which are now automated by technology, this allows trading from a couple of pounds per transaction.

Choosing the right broker is something you should look to do with a clear idea of your needs and the type of brokerage you're looking to work with. After all, you'll be spending a lot of time and money with the broker you ultimately choose, so it pays to make sure you get it right now rather than realizing in a year's time you chose the wrong service.

Advisory Service Stockbroker

Advisory service stockbrokers offer advisory services, in addition to brokerage services, to help investors discuss their objectives and identify the best trading strategy and instruments through which to achieve their goals.

Advisory service brokers are required by law to be regulated and authorized by the Financial Services Authority (FSA), the government body responsible for oversight of financial services such as banking and asset management. Make sure any advisory broker is regulated by the FSA before considering their advice, to guarantee you're dealing with a legitimate, above-board institution.

The broker will charge an extra fee, usually at an hourly rate escalating depending on the individual broker's experience, to advise on potential investment strategies. Naturally, you are free not to act on their proposals if you so choose, but the benefit of experience is often an attractive proposition, particularly for inexperienced traders with large capital amounts to invest.

Discretionary Service Stockbroker

A discretionary service broker is one that invests money on your behalf, rather than advising on which strategies are likely to deliver the highest returns. In this instance, don't expect to be actively involved in the trading process - the stockbroker is using his or her individual discretion and expertise to manage your money in a way that is relatively hands-free for the trader.