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How to Become an Effective Stock Broker

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Trading stocks on your own money has been something people have been able to do from home since the 1990s. Trading stocks as a financial agent for other people is more closely regulated, and you'll need to pass certification exams (Series 7 and Series 63 are the most common).

Most stock traders work for brokerage houses, though those houses exist in nearly every city in the US. The big money comes from working the big exchange houses on Wall Street in New York City; if you don't particularly want that commute, talk to local stock brokers about openings. At the lower levels, the field is fairly collegial and welcoming.

Next, pick a strategy and the kind of clients you want to service. Stockbrokers are a service professional. You're packaging your study of the dynamics of the market and the training you've had as a value add for trades that other people could do on their own - but usually don't have the time to do the research for. In this regard, you're a professional roughly on par with an attorney. There will be expectations for financial statements and recordkeeping, the prospect of audits, and the demand for utmost trust and integrity.



There are several strategies for buying stocks, and being a broker. The strategy you choose will determine what segment of clients you'll attract. For example, a 'buy and hold' strategy, like the one that Warren Buffett uses for Berkshire Hathaway, is a very conservative stock market play. You're buying companies that have a 'natural monopoly' in a consumer goods, and the aim isn't to make them increase in value, it's to get a share of their profits via dividends, out of which you take your commission and your customers get their proceeds.

A buy-and-hold strategy is best for people looking to build wealth slowly (as a hedge against inflation) or to keep wealth in the family for retirement or their children's investment fund. As a broker, the sort of research you'll be doing will be on specific companies - who their management team is, what they make, who they sell it to, how much debt they have, how much cash they have in the bank, and what they're doing to preserve their market share and overall position in their niche. It's also your job to be aware of things that threaten those sorts of companies, whether it's a new innovation in the field, a foreign competitor able to meet the demands for consumers at a lower price, and more.

The second major strategy for a stock broker is day trading. Day trading is making plays on volatility. The cost of a stock will fluctuate over the course of a day or a week based on product announcements, announcements from competitors, regulatory action, financial statements and changes of the board. Rather than focusing on what the company does, the day trader is looking for short term valuation shifts. The day trading strategy is good for making money fast, but it also has risks involved - it's also easy to lose money fast (as the 2008 stock market crash painfully reminds us).

Whichever of these strategies you use you should make sure you are aware of the other one. Most stock market disasters are made by people who didn't see something that was obvious (and which they didn't want to believe) at the time. This ends up resulting in the usual mantra: stock brokers and the markets will tend to ride trends and then ride them too far. An important trait of any kind of stock broker is to be aware of the things you don't know and aren't comfortable with. It's far better to pull your client's money out too soon than to wait for a collapse.

Ultimately, part of your job as a stock broker isn't making trades - it's getting new clients. You need to balance getting new clients (and building up your own income stream) with adequately servicing the clients you have. They're paying you those commissions to watch out for their interests - their financial futures. It's a large responsibility you've taken on. Don't get into stock trading because it interests you; get into stock trading because you value the relationship you have with your clients and want to see them prosper.
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