What does a broker actually do?

Summary

A broker sits between the trader and the market. It receives the order, applies the order instructions, decides whether to route or internally execute it where permitted, and remains responsible for best execution unless the customer gives specific routing instructions.

Definition

A broker is the intermediary that handles an investor’s order before it reaches an execution venue. According to the article, the broker first checks whether the order can be accepted under account, broker and market rules, then applies the order instructions such as side, size, order type and any limits or triggers. After that, the broker may route the order to an exchange, an ATS or another broker-dealer, or execute some or all of it internally where permitted. The broker’s role matters because the broker is responsible for using reasonable diligence to seek best execution under prevailing market conditions, unless the customer has given specific routing instructions.

Sources

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