Brokers sit between you and the markets, converting your clicks into trades, holding client money or coordinating with a custodian, enforcing margin rules, and sending the statements you rely on at tax time. The label “broker” covers a wide range of business models and permissions. Understanding the differences matters because it shapes execution quality, fees, leverage, dispute paths, and even what products you can touch. Below is a clear map of the main broker types you’ll encounter in public markets and OTC products, how they make money, what they actually do day to day, and which trader profiles they tend to fit.
Equity (Stock) Brokers
Equity brokers give you access to listed shares and ETFs on one or more exchanges. At one end are full-service firms that bundle research, corporate access, portfolio advice, and a trade desk; at the other are discount and app-first brokers that focus on self-directed accounts with low commission pricing. Under the hood, most are broker-dealers that route orders to venues and clear through their own affiliate or an external clearing firm. Your experience depends on routing and custody choices: some firms internalize or sell retail flow to wholesalers that may provide price improvement, while others offer direct market access with native exchange order types for active users. Margin lending, securities lending, cash sweep programs, and payment for order flow are common revenue lines you should read carefully because they affect your net costs, borrow availability for shorts, and the interest you earn or pay.
Options Brokers
Options brokers are still equity brokers, but with additional risk and routing machinery. They must support complex orders, portfolio or Reg-T margin modeling, early assignment handling, and correct treatment of corporate actions on single-name options. A capable options broker sends multi-leg tickets to complex order books instead of legging them, offers risk analytics (net greeks, stress tests), and publishes clear cutoffs for exercise and do-not-exercise instructions. Costs show up as per-contract commissions, regulatory and exchange fees, and the indirect cost of slippage when routing isn’t optimized. These brokers suit traders who want defined risk structures, volatility exposure, or income strategies and are comfortable with the operational details around expiration.
Futures Brokers and FCMs
Access to listed futures and futures options typically flows through a Futures Commission Merchant or a broker that introduces to an FCM. The critical difference versus equities is central clearing and exchange-set margin models (SPAN, PRISMA, or similar). A futures broker’s job is to route your orders to the exchange, maintain intraday risk checks, handle product rolls, and reconcile daily statements that break out initial and maintenance margin, realized and unrealized P&L, and exchange fees. Platform choice ranges from exchange-native desktops to third-party workstations with depth of market, spreads, and server-side OCO management. This lane fits traders who want standardized contracts on indices, rates, metals, energy, and ags, and who value efficient margin and clean settlement.
Forex Brokers (Spot FX)
Retail spot FX brokers fall into two operational camps: dealing-desk market makers that internalize flow and price their own book, and non-dealing-desk models (STP, ECN, DMA) that aggregate external liquidity and pass orders through. Neither is automatically better; fairness shows up in spreads, fill speed, slippage distribution, swap rates, and withdrawal reliability. FX brokers often offer higher leverage than exchange-traded products, which shifts more responsibility to the trader to manage gap risk around data prints and session handovers. Because accounts, platforms, and regulation vary widely by region, you should match the legal entity to your residency, confirm client-money segregation, and test funding and withdrawals before sizing up.
CFD and Spread-Betting Brokers
Contracts for Difference and spread bets mirror price changes in indices, FX, single stocks, commodities, and sometimes crypto, with the broker as your direct counterparty. These products are flexible and convenient but the real cost sits in financing, symbol specifications, and execution behavior more than in a banner spread. Good CFD brokers publish product schedules with trading hours, dividend adjustments, margin tiers, and guaranteed stop rules where offered. This category suits traders who want multi-asset leverage in a single account and are comfortable with OTC pricing and the need to verify slippage and funding line by line over a few weeks of live trades.
Crypto Brokers and Brokerages
Crypto access comes through two models: exchanges where you trade on order books and hold coins in exchange custody, and brokerages that give price exposure without native custody, sometimes via CFDs or spot with a custodian. The broker model emphasizes simplicity, fiat rails, and consolidated reporting; the exchange model emphasizes breadth of pairs, depth, and on-chain withdrawals. Risk lives in venue reliability, wallet security, funding rates on perpetual swaps, and weekend liquidity. This lane fits traders who need round-the-clock access and accept that venue risk and custody choices are as important as charts.
Prime Brokers
Prime brokers serve institutions, funds, and high-volume professionals that need credit intermediation, cross-margining, securities lending, capital introduction, and custom reporting. A prime arrangement lets clients face multiple dealers or venues under one umbrella with consolidated margin and settlement. Fees are negotiated and the operational lift is heavier, but the payoff is scale: better borrow for shorts, access to block liquidity, and lower friction across asset classes. Individual traders rarely need full prime; those who do typically run large, multi-strategy books.
Prime-of-Prime (PoP) for FX and CFDs
A prime-of-prime provider extends institutional-style liquidity and credit to sophisticated non-bank clients who can’t access tier-one prime brokerage directly. The PoP aggregates bank and non-bank liquidity, manages credit lines, and provides tighter spreads and better fill ratios than most retail venues. This route suits professional FX and CFD traders, small funds, and brokers that need upstream liquidity with risk controls and custom routing.
Clearing Brokers and Custodians
Clearing brokers process and settle trades for introducing brokers and smaller firms that don’t own a clearing platform. Custodians safeguard assets, handle corporate actions, proxy voting, dividends, and tax documentation. In retail accounts the clearing and custody work is often bundled and invisible; in professional setups you may contract separately. Understanding who clears and who holds assets matters because legal protections, asset segregation, and resolution paths follow those entities when something breaks.
Introducing Brokers and White-Labels
An introducing broker handles client acquisition, support, and sometimes education while routing accounts to a clearing or execution partner that handles the trades and custody. A white-label is a branded front end riding on another firm’s infrastructure. These models can be perfectly sound when the upstream partners are strong and transparent. The practical risk is layered responsibility at complaint time. If you choose an IB or white-label, learn the names and roles of every entity touching your money.
DMA and Agency Brokers
Direct Market Access brokers minimize intermediation, exposing native exchange order types and routing controls to clients who need precision. Agency models make money on explicit commissions, not spreads or internalization. These firms serve active equity and futures traders who care about venue selection, queue priority, and algorithmic routing such as VWAP or POV. Costs are visible and tools are powerful; the trade-off is learning curve and the need to manage your own routing preferences.
Market Makers
Market makers quote two-sided prices and may internalize client flow, profiting from spread capture and risk management rather than explicit commissions. In retail, this label often scares people, yet a competent market maker can provide stable quotes and better fills during volatile moments than a thin external book. The real test is fairness over time: balanced slippage, transparent rejects, published trade-desk rules, and clean withdrawals. If those show well in a small live trial, the model is doing its job.
Multi-Asset Brokers
Some firms combine several of the roles above—equities and options through a broker-dealer affiliate, futures through an FCM, FX and CFDs through a separate OTC entity, and crypto through a custody partner. The upside is a single login and consolidated reports; the downside is complexity in legal entities, differing protections, and varied fee schedules. Always match the entity on your statements to the regulator and rulebook that actually applies to that product line.
How Fee Models Differ Across Brokers
Brokers can charge per-trade commissions, embed markups into spreads, levy financing on leveraged holds, pass through exchange and clearing fees, and add account-level charges for data, wires, and inactivity. Securities lending, payment for order flow, and margin interest are major revenue lines that change your realized returns even when headline commissions look cheap. Price your intended month of trading—symbols, size, hold time, leverage, data—and compare across candidates using your own small live fills rather than marketing grids.
Picking the Right Type for Your Use Case
If you trade listed stocks or ETFs at low frequency and care about simple custody and clean statements, a mainstream equity broker with decent routing and fair cash yields is enough. If you trade multi-leg options, pick a broker that supports complex order books and publishes assignment rules you can live with. If you are heavy in futures, choose an FCM or a partner with stable exchange connectivity and good margin transparency. If you need leveraged multi-asset access in one place and accept OTC pricing, a reputable CFD broker may be practical. If your edge depends on routing, borrow, and speed, a DMA or agency model makes more sense. If you operate at institutional scale, prime or prime-of-prime becomes the natural step.
Practical Due Diligence Regardless of Type
Identify the exact legal entity that will hold your account and the regulator that covers it. Read the funding and withdrawal rules and run a small end-to-end test before scaling. Capture your own spread and slippage data at your trading hours for a few weeks and compare net cost per trade across candidates. Confirm how margin recalculates during events and whether the firm changes leverage or switches products to close-only under stress. Save statements and platform logs so you can resolve disputes quickly. When support can answer pointed questions in writing about routing, symbol specifications, corporate actions, and margin policy, you’re likely in good hands.
The label “broker” hides very different engines. Once you know which engine you need—agency routing, internal liquidity, clearing muscle, or multi-asset convenience—the choice simplifies. Match the type to your strategy and risk tolerance, prove the plumbing with small money, and keep auditing costs and execution as you trade. That’s how you turn a broker from a variable into stable infrastructure.
