What is a broker and how can I trade with one?

A broker is an individual or company that acts as an intermediary between an investor and an exchange, executing their financial transactions for a commission fee. Brokers can carry out transactions for forex, stocks, commodities or any other financial market on behalf of their investor. These are normally executed through a trading platform​. Both retail traders and institutional traders can request brokerage services.

A broker must be licensed to provide financial advice and execute trades, and they are usually authorised and regulated by the Financial Conduct Authority (FCA) in the UK. For example, at CMC Markets, we comply with Client Assets (CASS) rules to ensure all client funds are protected, holding them in separate bank accounts to the company. However, remember that most investors lose money when trading with a broker on leveraged products like spread bets or CFDs, so the process isn’t entirely risk-free.

Brokers can offer a wide range of services to investors, depending on the market you’re interested in, your overall goals and profit targets, and the funds that you have available to invest. Here are some of the most popular types of brokers.

Brokerage fees can either come as a flat fee or based on a percentage of the transaction. This will depend on the services that it offers and whether this is direct investment or derivative trading.

When you trade with a broker, you should take the following costs into account.

Depending on the broker in question, you can gain exposure to an endless number of financial markets and instruments. At CMC Markets, we offer trading on 12,000+ instruments via spread bets and CFDs, although some brokers may be more specialised towards a specific market in their offering.

One of the most popular asset classes among traders, a forex broker manages the buying and selling or exchange of currencies. The forex market is open 24 hours per day, meaning that you can take a position on currency pairs during any trading session. Each forex pair has a base currency and a quote currency, which measures their value against one another.

Winner of the best forex broker award in the UK** for our spread bet and CFD products, we are fully regulated and offer a product library containing 300+ currency pairs to trade on, which is the highest offering in the industry^. This includes major crosses such as EUR/USD, GBP/USD and USD/JPY, as well as minor and exotic crosses.

A stockbroker manages the execution of trades within the share (or stock) market. Investors cannot buy or sell assets on a stock exchange directly, therefore, a licensed broker is needed to complete the transaction. For example, in the UK, a broker may negotiate between the London Stock Exchange (LSE) and its client to find the best available price.

Winner of the best CFD broker of the year** by Shares Magazine, we offer spread betting and CFD trading on over 10,000 shares in the UK, US and globally. You can take a position on blue-chip and large-cap stocks, as well as cheaper penny stocks.

A commodities broker is in charge of executing trades for raw materials such as crude oil, gold, sugar, copper and natural gas, to name a few. These can come in the form of spot trades, as well as futures and forward contracts, where a buyer and seller agree to exchange a commodity at a set price and date in the near future.

As we only offer derivative products, you can spread bet or trade CFDs on the price movements of commodities, which means taking a position without the hassle of storage or transportation of the asset. This may be a well-suited method for traders who want to speculate on short-term price movements of volatile commodities, for example crude oil, without taking full ownership.

At CMC Markets, we have won numerous awards for our spread betting services*. When you trade with us, you place a buy or sell order for the instrument whose price movements you want to speculate on. You can play both sides of the market, opening long (buy) positions if you think an asset is due to rise in value, or opening short (sell) positions if you think an asset is due to fall.

Spread bet tax-free** with us on over 12,000 financial instruments. Our derivative products mean that you don’t take direct ownership of the asset, allowing you more space to trade the markets freely.

An alternative to spread betting, you can also trade contracts for difference (CFDs) with us on our wide range of markets. Remember that CFD trading comes with additional costs, such as capital gains tax and commission fees on shares, so this may result in being slightly more expensive when compared with spread betting. However, CFDs are available globally, whereas spread betting is restricted to the UK and Ireland*, so this may be more suited to investors situated abroad.