A financial intermediation is an organization that acts as a channel of communication between investors and companies looking for investors, and brokers aim to match investors with specific financial goals with investment opportunities that achieve those goals.
Financial intermediaries are often financial institutions such as banks or insurance companies, and financial intermediaries also come in the form of mutual funds, retirement plans, and brokerages.
Advantages of working in a brokerage company
There are many advantages to being a financial broker, including:
To reduce the degree of risk associated with the investment process, brokers often diversify the types of investments that they make, as a result of which the risks of individual investors are reduced; Brokers can cover losses more easily than individual investors.
For example, only one investor has access to a limited number of loans and may be greatly affected by the failure of one of the loans.
On the contrary, the banks can take on more debt and can easily recover the losses of bad debts.
Another advantage of a financial broker is that most of the research required to evaluate investment opportunities has already been done, saving investors time and money while reducing the likelihood of bad investments.
Since brokers tend to focus on investment options, such as borrowing money or buying stocks, investors are less likely to lose money on the trade, while higher returns are possible.
As a bonus, brokers can also set up and manage central counterparty clearinghouses and investment transactions for all parties involved.
Financial intermediaries also have the ability to provide a high degree of liquidity, which is important for investors because it means that brokerages can pay out assets without delay.
For example, a person who has a savings account in a local bank and wants to withdraw money from this account, even if the withdrawal amount is large, there is usually no delay.
The only situation in which financial intermediaries cannot quickly provide cash is when a large number of investors want to withdraw assets immediately.
However, many national banking systems can step in and avoid suspending payments to depositors.
Types of brokerage firms
There are many types of companies that fall under the category of financial intermediaries, namely:
Deposit takers are financial intermediaries that accept deposits from individuals and institutions and lend to individuals.
Since these institutions are involved in the creation of deposits that are an important part of the money stock, they are of particular importance in a monetary economy.
Among the deposit-taking financial intermediaries, commercial banks are undoubtedly the most important.
In addition to the bank, there is an intermediary, which we can call a savings institution, that is, a private financial institution.
These financial intermediaries are basically institutions that raise funds by selling demand deposits (deposits that can be withdrawn at any time and that can be withdrawn for examination) and term deposits (deposits that can be withdrawn within a certain period of time).
They use the money they collect by lending to businesses, consumer loans, and buying government-owned securities.
Commercial banks are the largest group of financial intermediaries in my country and have the most diversified asset portfolios.
They are interest-free institutions to save for people who do not want interest income.
In fact, those institutions that engage in interest-free banking should also be considered as deposit-taking institutions.
The main source of financing for such companies is the sale of participating accounts, which transfer part of the profits to their customers within the framework of transactions calculated on the basis of the balance of the participating accounts.
In the vending box, the customer is not paid directly, but the item to be purchased is bought and passed on to the customer.
Contract Savings Institutions:
Contract managers, such as insurance companies and pension funds, are financial intermediaries that receive periodic payments under contracts.
These organizations are not as bothered by losing money as savers because they can determine with reasonable accuracy how much they will pay in the next few years.
Therefore, the liquidity of assets is not as important for these institutions as it is for institutions that receive deposits.
As a result, these institutions often invest the money they collect in long-term securities such as corporate bonds, stocks, and mortgages.
Insurance companies provide insurance services in the areas of life insurance, health insurance, natural disaster insurance, accident insurance, etc.
Life insurance insures people against financial risks after death and sells them to annuities (annuity payments after retirement).
In health insurance, if a person gets sick, the cost of treatment is collected by these agencies from the premiums paid by the individual as per the policy, and this money is transferred to a long-term investment vehicle.
On the other hand, insurance companies provide policyholders with insurance against theft, natural disasters and traffic accidents.
However, insurance companies take money from the premiums they receive for prepared policies, and in the event of a major catastrophe, they may lose more money.
The importance of hiring a brokerage company
You might think that both buyers and sellers can rely on themselves in the transaction without having to seek the help of a middleman, but in reality this is difficult to achieve.
The reason is that traders often do not fully understand that they can act quickly and accurately when trading in the stock market.
For example, the situation inside the foreign exchange market is rather complicated, the foreign exchange market has a lot of experience in this field and is constantly aware of events and what is going on in this market, the best sellers and the most important buyers.
Therefore, it is important for brokerage firms to start here to help their clients settle settlements between them and their peers.
All this for the commissions for providing these services as they will help buyers and sellers to get the best investment price.
To open an account with any brokerage company, you can follow these steps:
First choose the type of company you want to open an account with, then choose the single or joint account type.
In case of opening a joint account, the partners must be present during the opening of the account.
Fill out the company form, read the contract carefully, and sign it.
To activate the account, each company sets a different date to start activating the account, and each has a secret number that it keeps in order to be able to transfer its funds to the company. Communication with the intermediary company can be done in different ways, whether by phone, e-mail, or by visiting the company.