Difference between broker and trader: what does each do?

It is common for these two terms to be confused and used indistinctly as if they were the same person with the same functions, but nothing could be further from the truth.

The lack of knowledge of the anglicisms used is often the cause of this confusion between broker and trader. It is natural that when you start to get interested in Forex investments and observe all these new terms, doubts arise.

However, in Smart Broker Solutions, we want to help you clarify this entanglement and consider that these two terms are not the same, although they may have meeting points. Let’s get to the heart of the matter and see what distinguishes them so that all is clear.

Difference between broker and trader: What is a broker?

So that you never forget again, visualize the Broker as a company dedicated body and soul to execute purchase and sale operations for the clients linked to their firm.

What does this company receive in return? Since it is an intermediary in the purchase and sale orders it carries out, it receives commissions for such transactions. Another aspect that will make this term stick in your mind is that brokers are known in this market as stockbrokers.

The following defining characteristic is that they are the only ones licensed to execute transactions in the securities markets. Therefore, if someone wants to venture into Forex, they must do it through a broker.

If you plan to start your own business as a broker, you will know that the investment is considerable; therefore, we present you with an alternative. We are talking about our Branded Solution, an attractive option as a start-up broker. We give you a hint to avoid any doubts; they are turnkey companies that can begin to operate shortly. If you want to get started with the best 24/7 support, SBS has all the keys.

Continuing with what concerns us, which is the difference between broker and trader, the broker, as an accredited entity to carry out these transactions, will provide its clients (traders) with the platform so that they can operate and carry out their investments in the stock market.

What is a trader?

Focusing on their work, traders buy and sell stocks, bonds, currencies, and indices, financial assets on which they intend to profit.

One of its fundamental characteristics, and one for which they must prepare themselves, is that their job is to study and follow the fluctuations of stock prices during execution; this is not easy, but with the right experience, the benefits can be substantial.

One thing that sets traders apart is that they can focus and specialize in one or several markets at a time, including Forex, commodities, cryptocurrencies, and stocks. They can also work on their own by investing their own money or have the possibility to trade with capital provided by other entities or companies.

One of these modalities is Prop Trading. In this, traders, through a trading contest, can have the possibility to operate; this takes place on accounts with virtual capital. The traders trade with the entity’s equity, and the best ones, those who pass the criteria, will manage a real trading account, participating in the distribution of profits.

What is the difference between a broker and a trader?

Once you know what each one is, as we explained above, you will be able to realize some elements that make them distinct. However, there are several differences that we can highlight between brokers and traders. The main one is that the broker provides the trader with the platform to operate in the stock markets.

Let’s learn more about these differences. The idea is that whether you start your own brokerage company or opt for the role of a trader, you know what your skills are and what is best for you:

● The trader will be the one to decide whether to buy or sell

Whether stocks or any other financial product, the broker is the one who will execute that order. The difference is that the broker only acts as an intermediary; it does not assume the risks of such a decision.

The trader assumes the risk. The broker charges a commission for the intermediation and never loses money by operating.

● Brokers provide the platform

Traders trade through it. There is no other possibility, the trader is obliged to use the broker platform to make the purchases and sales in the market of their preference, but they cannot make these transactions directly.

● The trader performs the operations at their own risk

Another difference is that the trader will only win if the buy price of the executed order is lower than the selling price at which the market closes; otherwise, they lose money.

● The broker must keep the platform up to date

Doing so is essential to be able to execute the operations that your clients decide. On the other hand, the trader will choose the broker that satisfies them best in terms of the conditions to carry out his operation, the speed without delays and his connection to the market, access to liquidity and a long etcetera. That is why it is also vitally important to maintain a CRM platform with state-of-the-art technology.

What points do they have in common?

The broker and the trader need each other to carry out an investment process and for everything to run smoothly in this volatile market. Although the difference between broker and trader is well-marked, their meeting points are also well-defined.

For example, the two operate in fluctuating markets and invest differently. The trader executes orders, and the broker spends on licenses, platform maintenance, employees, etc.

As you can see, it is simple to understand, and as always, in Smart Broker Solutions, we want to offer you the solutions you need to provide your customers with the best alternatives to achieve success.

Rodrigo Insua

Avatar of Rodrigo Insua

Head of Marketing en Smartbrokersolutions. Coordination and management of online and offline marketing campaigns.