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Who is the Floor Broker: Definition and Features
When you have begun trading there are 3 ways you can go about buying and selling your options. You can go through a floor broker, a floor trader or you yourself can put in your investments.
Since most of the people don't have the time to constantly monitor the stock markets and be there, they usually use a trading firm for their investments, many of these trading firms have floor brokers who in turn invest in options according to the client's wishes at the prevailing market price.
If put in simple words, a floor broker is the one who performs the deals on the behalf of the investor. Floor broker is not responsible or effected by the consequences of the deal made. He merely acts as a representative of the customers of the firm on the trade floor. They are commonly known as pit brokers. Their job is to make best call or put deals and once the deal is closed, a notification and the result for the same are sent to the investor.
A floor broker has the following important features:
- He acts as a conduit between the client and the market
- He is usually an employee of a trading firm which in turn is giving its services to another client
- He cannot make his own independent decisions
- His main job is to follow the client's wishes.
Thus, a floor broker has only a robotic function. He conveys the latest strike prices and features back to the client and leave the decision to the client.
The major advantage of using a floor broker is that you get the latest strike prices as and when it changes, which helps you make a real time, call or put option. Since the floor broker has to follow your orders, you can be assured that your decisions will be carried out the way you want and only you will be responsible for its consequences. Dealing through a floor broker can help an investor trade peacefully and with all the comforts away from the chaotic and nerve-racking environment of the trade market floor. They are also experienced and proficient in making deals with diverse variety of personalities. Everybody can not be a floor broker. It require a particular set of skills which is essential while working on the floor and one also needs to clear a test before joining any exchange. So, one can always depend on the floor broker for carrying out transactions on his behalf. As the floor brokers are employed in the firms, investors can be certain of their fair and legal practice.
A difference must be made here between a floor broker and a floor trader. A floor trader is an investor himself. He works on the floor of the exchange, making and changing investments for his own portfolio. In the present computer age, actual presence on the floor exchange is not needed when the same can be done from a computer.