What is a broker?
A broker is a firm that has the right to trade on the exchange and buys and sells shares on behalf of others. You tell the broker which share, how many and at what price you want to buy or sell; the broker puts it into the exchange’s system. Most brokers now have an app or website, so you can enter orders yourself, but they still go through the broker.
A broker does more than pass on orders. It keeps track of the money you deposit, pays for what you buy, credits your account with what you sell, and sends you statements. Many brokers also open your BO account as a depository participant.
When you buy potatoes, you do not go to the farmer; you go to a trader who has a place in the wholesale market. A broker is a bit like that: it holds the “key” to the exchange. The difference is that the broker does not buy the share and resell it to you; it buys on your behalf, and the share goes straight into your name.
Why it matters to an investor
- To understand costs: commission is taken on every buy and every sell. Trade often and these small costs add up.
- To understand where your money is safe: your shares sit in your BO account, but unused cash sits in a bank account the broker keeps. You need to know the difference.
- To own your decisions: a broker’s job is to carry out orders. Which share to buy is your responsibility, not that of a broker’s or its staff’s “tips”.
- To know where to go if something goes wrong: complaints against brokers go to the exchange and BSEC.
Who brokers are in Bangladesh
In Bangladesh, a firm needs a TREC (trading right entitlement certificate), the right to trade on the DSE or CSE, plus BSEC registration. According to a 2020 report there were then 250 TRECs at the DSE and 148 at the CSE; many new licences have been issued since, so the number changes. Before working with any broker, check that it is registered.
The cash you deposit is kept by the broker in a separate bank account called the consolidated customers’ account (CCA). Under the rules this money may be used only to buy shares for the client or to collect commission and fees the client owes. Even so, some brokers have in the past been accused of moving this money elsewhere, and the regulator has been bringing in rules such as daily updates of CCA balances.
What the charges are
- Commission: a small percentage of the value of every buy and sell. The rate differs between brokers, so get it in writing.
- Tax on trades: a small tax on the value of share and mutual fund trades is taken at source (0.05%, according to press reports) and shows on the broker’s bill. The rate can change through the Finance Act.
- The yearly BO account fee and, in some cases, CDBL charges.
- Interest on any margin loan. Buying shares with borrowed money makes both gains and losses bigger.
Worked example
- Say you buy 200 shares at Tk 50: Tk 10,000. Say commission is 0.4%: Tk 40. Total cost Tk 10,040.
- Later you sell at Tk 51: Tk 10,200. Commission at 0.4%: about Tk 41. You receive about Tk 10,159.
- The price gain is Tk 200, but commission both ways is about Tk 81. The real gain is about Tk 119.
Result: trading often on small price moves sends a big share of the gain to commission. The numbers are only an example, and trade tax comes off as well.
Common mistakes
- Giving a broker your password or a verbal “just trade for me”. Unauthorised trades are then hard to prove.
- Not checking the broker’s statement against your CDBL statement.
- Choosing a broker only for low commission, without checking registration, service and complaint history.
- Buying on a broker employee’s “sure profit” tip.
A broker carries your orders to the exchange and keeps your cash account; check its costs, registration and statements yourself, and make your own decisions.