What is a Floor Broker?

Malcolm Tatum

Floor brokers are investment professionals who are authorized to purchase and sell investments on the floor of an exchange. A floor broker will be a member of the exchange where he or she conducts the investment transactions on behalf of a client. After executing an order of some type, the broker relays the information to the brokerage firm, who goes about the process of applying the order to the client account and reporting the trade so that it shows up on exchange activity posted online and accessed via ticker tape.

Floor brokers are authorized to buy and sell stocks.
Floor brokers are authorized to buy and sell stocks.

A floor broker is not the same as a floor trader. Traders are individuals who are members of the exchange and are there to execute orders on their own behalf. As such, the trader is able to make decisions on trading activity that may or may not be in keeping with his or her usual strategies. In contrast, the floor broker always represents the interests of a client of the brokerage firm that employs the broker, and conducts buying and selling activity in accordance with guidelines approved by the client.

The importance of a floor broker to the investing process cannot be underestimated. Often, the floor broker becomes aware of information immediately, something that may or may not be the case for most investors. Since the broker acquires this information the moment that it becomes public knowledge, it is possible to make use of that information without any delays. Assuming that the level of authorization provided by the client is sufficient, this means that the floor broker is in an excellent position to prevent an investor from incurring a sudden loss due to unanticipated changes in the marketplace. At the same time, the broker can get the investor in on a good deal before the unit price of the securities begin to increase drastically.

In all dealings, the floor broker must follow the rules and regulations set in place by the exchange. Failure to do so can lead to temporary expulsion from the market floor, a situation that greatly hinders the ability of the brokerage firm to provide superior service to the client. In situations where repeated infractions take place, the floor broker may be subject to fines, or even permanent banishment from the exchange floor. For this reason, floor brokers often go to great lengths to make sure they are in full compliance with both the regulations of the exchange and any laws put in place by governmental regulatory agencies that oversee investing activity within a given nation.

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