A stock broker is an intermediary that executes buy and sell orders for financial securities on your behalf. Without a broker, individual investors have no direct access to stock exchanges. Understanding the different types of brokers — and how they make money — helps you make a smarter choice.
How stock brokers work
Stock exchanges like the Frankfurt Stock Exchange, NYSE, or Euronext don't allow members of the public to trade directly. Only licensed member firms can execute trades on exchange. A stock broker is a licensed firm (or individual) that holds exchange membership and can buy and sell securities on your behalf.
When you place an order to buy 10 shares of Apple through your broker app, the broker routes that order to the exchange (or executes it internally against other customers' orders in a process called internalisation), the trade is matched at the best available price, and the shares appear in your account usually within two business days (T+2 settlement in the EU).
Types of brokers explained
Full-service brokers offer personalised investment advice, portfolio management, tax planning, and dedicated relationship managers. They charge significantly higher fees — often 0.5%–1.5% of assets per year plus trade commissions. Examples: private bank brokerage arms. Suitable for high-net-worth individuals who want a managed relationship.
Discount brokers execute trades without personal advice. They offer a platform, basic research, and order execution at much lower cost. Most modern online brokers are discount brokers. Examples: DEGIRO, XTB, Charles Schwab.
Robo-advisors are automated investment platforms that build and manage a diversified portfolio (usually ETFs) based on your risk profile. They charge an annual fee of around 0.2%–0.75% of assets. Examples: Scalable Capital, Nutmeg.
CFD brokers allow you to trade contracts for difference — leveraged products that track the price of an underlying asset without owning it. These are higher-risk instruments, and 70–80% of retail CFD traders lose money. CFD brokers make money primarily from the spread.
How brokers make money
Understanding a broker's revenue model tells you where potential conflicts of interest lie. Commission per trade: The traditional model — a fixed fee (e.g. €1 per trade at DEGIRO) each time you buy or sell. Zero-commission brokers generate revenue through: Payment for order flow (PFOF) — selling your order flow to market makers (banned in the EU from 2026, still common in the US). FX conversion fees on foreign currency trades. Premium subscription tiers. Spread mark-up on CFDs and forex. Lending client securities to short-sellers (securities lending). Interest on uninvested cash held in accounts.
When a broker is 'free', something is funding that free service. Knowing what it is helps you evaluate whether the arrangement is acceptable.
What regulation do brokers need?
In the EU, stock brokers must be authorised under MiFID II (Markets in Financial Instruments Directive). This requires: capital adequacy (minimum financial reserves), client fund segregation, best execution obligations, conflict of interest disclosure, and participation in a national investor compensation scheme.
In practice, look for FCA authorisation (UK), BaFin (Germany), AMF (France), CySEC (Cyprus), or equivalent. ESMA provides EU-wide oversight. Never use a broker that can't show you an active regulatory registration number.