How do stock brokers earn money?

My friends and I have an argument. How do stockbrokers really earn money? They think it is like gambling! Just as a casino owner owns money by attracting customers to buy chips, a stockbroker lures customers into stock speculation and earns money. Thats where the real money is for brokers - in speculators --> thats what my friends think. I am however of a different opinion and think even retail brokerages can not ill-advise and still earn a decent buck. Is this really true or am I being too idealistic?

Public Comments

1. Brokers make money in two basic ways 1. commissions when you buy or sell stocks, bonds, mutual funds, annuities etc 2. Some brokerage accounts/products compensate the broker by paying them a percent of the assets in the account.

Like all salesmen their is pressure to earn money buy getting you and other customers to do things that make them money. This creates a conflict of interest e.g. it may be best for you to buy a low cost index fund and hold it for a long time. This won't help the broker feed his family but it may help you feed yours. Also brokers must continue to sell or they can lose their job. So there is a lot of incentive for the broker to want you to sell what you have and buy some new "better" stock or product. If he gets compensated by a % of assets then this problem is mitigated but you end up paying a hefty fee each quarter and are not really receiving much service from your broker.

Brokerage firms and the media are always touting new products or hot stocks etc to encourage you to trade.

2. If you want to trade in market you do broker can't do anything he can't tell you u have to buy this or sell that it is your decision to invest in market and when you buy or sell they charge you brokrage this their business there is nothing wrong and some call are profitable while some are not it doesn't mean they are cheater. after all they are also human not god.

Invest with your own head on not advise of broker.