Difference between a broker and sub-broker
Many people, when they refer to a broker, actually mean sub-broker. It’s a common and understandable mistake since sub-brokers do pretty much the same thing as brokers. They buy shares on behalf of their clients on the stock exchanges in exchange for a fee.
The reason why there are brokers and sub-brokers is that only brokers are allowed to trade on the stock exchanges. So any time you want to buy or sell a stock you have to do it through a broker. Since the supply of brokers is somewhat limited, sub-brokers do most of the work of investing people’s money in the stock markets.
So what’s the difference between a broker and sub-broker? Brokers are members of stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Only these brokers are allowed to trade on the exchanges.
Brokers usually operate large brokerage houses and enlist sub-brokers or franchisees to do the work of acquiring clients and helping them carry out transactions on the stock exchange. The brokers provide the brand name, infrastructure, technical, and marketing support to the sub-brokers. For example, Angel Broking provides facilities like digital marketing, business dashboard, business consultancy, client servicing support, and so on to its sub-brokers.
Another difference between a broker and sub-broker is how they earn money. The latter work on commission which is a percentage of the brokerage that is charged by brokers to carry out transactions on the stock exchange. Generally, brokers are generous with the commissions since the stockbrokers do most of the hard work of acquiring clients and persuading them to purchase shares.
Of course, shares are not the only products that are offered by brokers and sub-brokers. For example, Angel Broking offers stocks, mutual funds, commodity trading, and derivatives like futures and options. As these markets grow in size, and the potential from making profits from them grows, the proportion will only increase.
Advantages of being a stockbroker
- Only stockbrokers are allowed to trade on the stock exchanges, so this gives them a monopoly over share transactions.
- Stockbrokers are independent entities not answerable to anyone, except to exchange and regulatory bodies like the Securities & Exchange Board of India (SEBI). There's no direct involvement by SEBI unless there's a legal violation.
- Brokers are in a position to fix brokerage charges for their clients.
- Most brokerage houses have trained personnel and IT infrastructure that enables them to take full advantage of stock market movements.
- Brokers can appoint sub-brokers at their discretion. The larger the number, the higher the potential profits.
Advantages of being a sub-broker
- A sub-broker does not need to become a member of the exchange and meet minimum net worth requirements and pay a fee.
- While sub-brokers are answerable to the brokers, the latter do not generally interfere in their functioning. To the contrary, broking houses like Angel Broking are supportive of sub-brokers and offer infrastructure and support for client acquisition, developing the business, and so on.
- Sub-brokers do not have to invest large sums building an infrastructure and a brand from scratch. All they need is the initial refundable deposit and the expenses involved in setting up an office, hiring staff etc.
- Since entry barriers are low, virtually anyone can become a sub-broker. All it takes is some knowledge of stocks and financial markets, and drive.
To conclude, the difference between a broker and sub-broker doesn’t matter to an ordinary investor. All that matters is that the entity he or she is dealing with is reliable, offers sound advice, and carries out transactions quickly and efficiently. Of course, the brand of the broker the sub-broker is working under matters. A brand like Angel Broking, for example, will inspire confidence among investors.