Definition of brokers
By definition, a broker is someone who connects active traders (e.g. a seller with a buyer) and organizes the trade for a commission. Generally, when we talk about brokers, we mean the ones working close to famous trading floors, like NYSE, NASDAQ and LSE For example.

There are also broker roles in different industries as well. For example, brokers are present in real estate, vehicle sales.

The problem for a retail trader, that it is really hard to have access to a trading floor. It is costly, complex and requires expertise. It has a high entry barrier. Only experts and major brokerage firms can afford the high requirements.

Requirements of a seat
But what are these high requirements? For example, a seat on the NYSE trading floor for example costs between $4,000 - $10,000 which is way out of reach for retailers to access.

Also, you'd need a license to act as a broker-dealer by the Financial Industry Regulatory Authority (FINDRA) in the US to have access to the markets.

So brokerages - especially online brokerages - try to connect the space between trading floors and retailers as intermediaries.

They have access to the world's trading floors, and they let you trade on these exchanges for a certain fee. They'll forward your order request to the exchange, and grant you the product you wish to buy or sell.

Since the continuous expansion of digitalization, an online broker with a proper brokerage account could be an inexpensive alternative for someone who wants to trade and invest in stocks, forex, bonds, mutual funds or other products.

Let's see how can we categorize brokers.

Stockbrokers, CFD/Forex brokers
Generally, brokers can be put in 2 main categories:

Stockbrokers
CFD/Forex brokers

Stockbrokers
The term stockbrokers may refer to the brokerage firm itself, or to the employees of such firms. They handle order requests - transactions - of individuals, and institutions.

These transactions mainly aim but are not limited to stocks, ETFs, options, mutual funds. Some brokers have other derivatives, like futures, CFDs and also forex.

Of course, there are multiple aspects of a stockbroker, and it is really hard to define them to new investors, but the quickest we can put it: these brokers specialize in stock investments and offer trading opportunities with alternative "real" underlying assets.

To provide this, brokers need access to real markets which requires them to have stricter regulations and a great deal in liquidity. This means, these broker giants often have entities that are regulated by multiple regulators.

Some of these brokers have long track records, being in business for around 20 years offering their trading services - and recently, an online trading platform. Think of Interactive Brokers, Saxo Bank, Swissquote and so.

Stockbrokers don't have to be "old" to qualify as one. Newcomer brokers offering individual stocks can also be categorized as stockbrokers, like Freetrade, Alpaca Trading, Robinhood etc.

Usually, these brokers charge a fixed commission per each completed trade on their trading platforms, however, the fee structures vary between investment accounts. Some brokers charge fees after trading a few times, some charge as a % of the trading value.

There are also brokers with a subscription-like structure.

Since 2019, there's been an emerging trend in commission-free stock trading aiming at retail investors. Plenty of brokers switch to these models to better acquire new customers. Often, they are paired with the option to trade fractional shares.

There's something for everyone - for example, if you'd like to trade with bigger exposure, you can apply for margin accounts on an advanced trading platform to do futures trading or anything you like.

CFD/Forex brokers
The term CFD/Forex brokers may refer to firms that mainly deal in derivatives and forex. They are intermediaries between the clients and the markets. The difference is, that a trader in contract terms with the broker itself, and can realize profits from the price movements of the real underlying. CFDs can be stocks, commodities, indices or even crypto as well. +

The best we can sum these services up CFD/Forex brokers are usually cheaper services offering only CFDs and forex to trade. Some services offer real stocks as well, but only on the US markets, for relatively low fees. They only have a few entities, regulated by one top-tier regulator.

For higher exposure, they let traders use leveraged trading. The level of leverage is dependent on the broker. For example, an active trader at service may change the leverage to 1:1 if they have such a trading account.

There are also services that have fixed 5:1, 25:1, 50:1 leverage, which is highly dangerous for beginner traders and their investment goals.

This doesn't mean that CFD/Forex brokers aren't reputable, or trustworthy services. There are bad stockbrokers, and many good CFD/Forex brokers. Good CFD/Forex brokers with a long track record and high reputation include IG, XTB, CMC Markets and eToro.

Apart from CFDs, these brokers specialize in forex trading and costs are usually charged on a spread basis or as a % of the trade value.

Are crypto service exchanges brokers?
The short answer is: not. They provide access to their own markets and they are not as tightly regulated as brokers are.

How to choose an online broker
Before discount brokers and commission-free trading - or even, digitalization - working with brokers was the privilege of the very few. You probably remember all those movies where people are shouting at phones in packed offices, swearing and sweating.

Of course, in movies, this is overdramatized, but the core flow of work was close to what was represented in Hollywood. You had to call up a representative, who could connect you to your potential seller or buyer. This has somewhat changed after the rapid expansion of digitalization and the internet. Only, today connecting a buyer to a seller is done digitally, by computers and algorithms.

Nowadays, while personal financial advice and personal brokerage still exist, the last decade online brokers took the stage. However, choosing the best online broker is just as difficult, as choosing your daily driver of a car. As with cars, it is really hard to navigate between all the options without proper expertise - whether our dream car would be electric, non-electric, new, used, SUV or small.

To tackle this, in this article, we give you a few ideas on how to choose your ideal service in the world of online brokerage.