Question

• In your own words, provide 3 methods of buying stocks, and explain the transaction in detail (provide information about the transaction, for example, if one of your methods is buying from an online platform, mention CFDs and explain what it is and how does the transaction works including the kind of commission or fees paid).

• - In your own words, explain the differences between a broker, a dealer , and a specialist. When can a specialist act like a dealer and when can he act like a broker? Provide an example

Answer 1

Three Ways to Buy Stocks

• Method 1: Brokerage Firms.
• Method 2: Discount Brokers.
• Method 3: Buying Stocks Without a Broker like online platform.

Online/Discount Brokers

Online/discount brokers, on the other hand, do not provide any investment advice and are basically just order takers. They are much less expensive than full-service brokers since there is typically no office to visit and no certified investment advisors to help you. Cost is usually based on a per-transaction basis and you can typically open an account over the internet with little or no money. Once you have an account with an online broker, you can usually just log on to its website and into your account and be able to buy and sell stocks instantly.

Remember that since these types of brokers provide absolutely no investment advice, stock tips, or any type of investment help, you're on your own to manage your investments. The only assistance you will usually receive is technical support. Online (discount) brokers do offer investment-related links, research, and resources that can be useful. If you feel you are knowledgeable enough to take on the responsibilities of managing your own investments or you don't know anything about investing but want to teach yourself, then this is the way to go.

Difference Between Broker and Dealer

A dealer is a person who will buy and sell securities on their account. On the other hand, a broker is one who will buy and sell securities for their clients.

While dealers have all the rights and freedom regarding the buying and selling of securities, brokers seldom have this freedom and these rights.

A broker has only a little experience in the field compared to dealers. It has also been seen that brokers become dealers once they get experience.

A broker is normally paid a commission for transacting the business. A dealer is not paid a commission, and he or she is a primary principle.

A broker is a person who executes the trade on behalf of others, whereas a dealer is a person who trades business on their own behalf. A dealer is a person who will buy and sell securities on their account. On the other hand, a broker is one who will buy and sell securities for their clients.

Nasdaq is a computer trading network that relies on multiple market makers—broker-dealers who are members of that exchange. A specialist is a type of market maker who works on the floor of the NYSE and specializes in trading specific stocks.

A specialist act like a dealer and a broker.

Specialists also buy or sell the stock when it reaches a certain price. If a floor trader's bid is above the asking price, but then the asking price rises to match the bid price later, the specialist then fills the order. Before the stock market opens for the trading day, specialists attempt to find a fair opening price for a stock. If a specialist can't find a fair opening price, he may delay trading on a particular stock as part of his overall role.

For Example

Seven firms in New York employ all of the specialists on the floor of the New York Stock Exchange (NYSE).

A specialist has four major roles to fill. He acts as an auctioneer to show brokers the best bids and offers. A specialist also continually updates floor brokers to act as a catalyst for buying and selling. He places an order on behalf of brokers and places orders for customers ahead of his own. Despite all of these duties, the number of specialists has declined, thanks to electronic trading.

Specialists started on the floor of the New York Stock Exchange in 1872. In 1986, as many as 420-floor brokers sold approximately 250 million shares of stock every trading day. Since the advent of electronic trading, the vast majority of trades occur digitally, as opposed to specialists on the floor.