What are Independent Brokers?

One glance at the floor of a major regional stock market may appear to the untrained eye as chaos. Actually, what is going on is a rather organized trading system led by teams of independent brokers and broker dealers. A broker on the floor of a major stock exchange, or floor broker, is in place for order execution, the fulfilling of buy and sell orders from large and small investors. These professionals often are compensated based on the amount of money they earn for their clients and the company for which they work.

Although many stock exchanges around the world have transitioned to an electronic trading environment, there still large stock markets — including the New York Stock Exchange in the United States and the London Stock Exchange in the United Kingdom — that still employ independent brokers on the floor of the exchanges. These floor brokers are not employed by the exchange at which they trade but instead by an independent firm that has rights to space on the trading floor.

There typically is a pod sort of establishment belonging to brokerages where independent brokers from the same firm have a home base. Here is where brokers communicate and execute buy and sell orders for stocks on behalf of their clients. This is known as order execution.

These trade orders are communicated from one broker to another often across the trading floor with hand signals. Independent brokers from the same firm typically will wear a jacket of the same color so that brokers can easily recognize a trader from their own firm. It is the job of independent brokers to execute orders at the best price possible for their clients. This is done in a bidding process, where a seller establishes an ask price and a buyer offers a bid price, and the independent broker must execute the order.

Stock broker firms might employee hundreds or even thousands of individual brokers. Typically, it is the large investment banks with independent brokerage arms or divisions that have the largest presence on the floor of a major stock exchange. Only a group of brokers from a respective firm, however, are selected to be on the stock exchange floor. These brokers might execute trades on behalf of clients or on behalf of the firm for which they work.

The key difference between these tasks is that when traders are executing buy and sell orders on behalf of clients, they are acting as independent brokers. When it is firm money that they are trading on behalf of the company, these professionals are executing trades as an independent dealer. A brokerage firm might buy and sell securities with its own money as a means to generate an additional revenue stream.