Difference between broker and trader | 2022

The difference between a broker and a trader is that the broker is the authorized intermediary for the purchase and sale of financial products, while the trader is the person who makes investment decisions.

The concepts of broker and trader are very often confused by those who are not sufficiently familiar with the world of investment. Although it is true, it should be noted that these are not opposing concepts, but rather complementary ones.

This means that, as a general rule, in order to invest in financial products, the presence of both a broker and a trader is necessary. Next I am going to give you a brief definition of each of these concepts that you can expand with the linked articles.

A broker is a person or entity authorized to participate in a market by buying and selling the products traded. That is, only those authorized brokers will be able to buy and sell in a certain market.

Simplifying, imagine that a few companies are licensed to buy and sell all the bottles of water on the market. In that case, the only way to buy a bottle of water is by going to these companies.

While it is true that there are many types of broker depending on the products they are authorized to market, in this article we are going to focus on financial market brokers. This, since they are the ones that are often confused with traders.

In the case of a trader, it is a person who invests in the financial markets in order to obtain economic profitability. The trader follows an investment strategy that makes him make decisions to buy and sell those financial products with which he considers it appropriate to operate.

See also  Phil Knight - Economipedia

Difference between broker and trader

After knowing the definition of each of these concepts, now we are going to see what is the difference between them. A broker and a trader need each other to be able to carry out an investment process, but each one has different functions.
In the case of the trader, he will be the one who gives the order to buy or sell a financial product and the broker is the one who executes it.

For example, imagine the process of buying shares of Coca Cola and selling shares of Adidas. The trader will be the one who makes the decision of how many Coca Cola shares to buy and how many Adidas shares to sell, since he has decided this after following his investment strategy.

Once the trader has made these decisions, they must be communicated to the broker to carry them out. These orders can be given by computer through the broker’s own platform. Once the trader has entered their orders on the platform, the broker will be in charge of carrying them out.

Leave a Comment