For trading stocks, you need a stock broking firm as you cannot just go straight to the stock exchanges like the NSE or BSE and trade stocks. While there are many stock brokerage firms around the country, you will have to deal more with the sub broker franchise as these big stock brokerage houses expand their business via sub brokers.
This article will help you understand the nature of the business of a stockbroker and a sub broker, their differences, and a lot more. But first, let’s start with the basics and find out who is a stockbroker.
Who is a Stock Broker?
If you are wondering what a stock broker is, then let us give you a brief explanation. A stock broker is a depository participant (DP) who carries on trades on behalf of the clients they have. It can be an individual or a company that offers trading and Demat services to traders and investors against a brokerage fee. They are the links between the client, the depository (NSDL or CDSL) and the stock exchanges.
There are two types of stock brokerage houses – full-service brokers and discount brokers. For more details, you can check our article on the type of stock broker. In short, full-service brokerage houses provide all types of services, both basic like trading and Demat to research and advisory services and charge a reasonable fee for the same. On the other hand, discount brokers charge low brokerage rates as they provide only basic trading services.
Stock brokerage houses expand their business via authorised persons or sub brokers and master franchises. This takes us to the next segment of the article, which is about the sub broker.
Who is a Sub Broker?
A sub broker can be referred to as an agent of the stock broker. Stock brokers expand their business to different regions via sub brokers, who are now referred to as “authorised persons” in India as they are authorised to carry on the services provided by the stock brokerage houses and also on behalf of the clients.
Sub brokers act as the link between the clients and the stock brokerage house and work for commission. Usually, the commission they earn is variable and sometimes fixed. Sub brokers offer all the services and products of the stock brokerage house they are associated with. Moreover, they also provide extra services like providing suggestions and market tips, as well as research and advisory services to their clients.
The Difference Between a Stock Broker and Sub Broker
While sub brokers are like branches of stock brokers with the same functions, there are certain crucial differences that we need to understand.
A stockbroker earns through a brokerage fee and charges from the client for rendering their services. Sub brokers, on the other hand, earn a portion of that brokerage fee for getting the client on board with the stock brokerage house.
The stock brokerage houses’ work is not limited to rendering services as a sub broker. They have to build those services and products. For instance, the trading terminals and the other tools that are offered to the clients by the stock brokerage house and its sub brokers are developed by the sub broker itself.
To become a sub broker, you need to have SEBI registration and certain other certifications. For starting a stock brokerage house, there are different requirements and criteria to be fulfilled.
This leads to the cost involved in starting a stock brokerage house, which is way higher than becoming a sub broker.
To get trading and investment services, you can choose a local sub brokerage house of a known stockbroker. This will help you get better service from the broker. You can easily locate the sub brokers of your favourite broker by visiting their site.