What is a Floor Broker?
A floor broker, also known as a pit broker, is a brokerage firm employee who executes orders on the floor of a stock or commodity exchange on behalf of clients.
How Does a Floor Broker Work?
A floor broker receives an order from a client through his or her brokerage firm and trades the security with other brokers on the exchange floor. Based on interactions with specialists in the specific securities being traded and bidding with other brokers or traders on the floor of the exchange, the floor broker attempts to get the most competitive market rates available for his or her client. When the floor broker executes a transaction on behalf of the client, he or she notifies the client through the client's registered representative at the floor broker's firm.
A floor broker is different than a 'floor trader' who, although he or she also works on the floor of the exchange, makes trades as a principal for his or her own account. However, at times, floor brokers also handle large volume trades on behalf of floor traders. The floor broker is licensed by the relevant state authority and the US Securities and Exchange Commission. The floor broker receives a fee for each securities trade.
Why Does a Floor Broker Matter?
Floor brokers act as agents for investor clients, giving them the closest thing possible to direct access to the exchange floor. Floor brokers are responsible for assessing market information, prices, competition, and using this information to make the best possible trades on behalf of their clients.
