1. What is it?
The Home Broker is an electronic platform, put into action in Brazil around 1999. It allows users to buy and sell stock online, as well as keeping up with all rates and deals for shares listed on the stock exchange. The Home Broker helped reduce transaction costs, made all negotiations easier and increased both the popularity of the stock market as an investment option and the liquidity of the stock. Almost every broker house today has a similar tool.
The Home Broker allows the user to check stock prices in real time, access a summary of the most traded shares of that day and of the ones with greater fluctuation, and also informs what brokerage house the command or order came from. It also makes information such as the ten best buy and sell offers (the offer book), the last deal traded, the fluctuation of a specific share on a specific date, opening and closing prices and daily deals, amounts and rates available. At the Home Broker it’ll always be possible to check the history of all the orders the user has given as well as prices, finance and brokerage notes.
2. Command types
Use of the Home Broker allows for the following orders and commands:
The investor chooses a stock and the quantity they want to buy. This command has to be executed immediately, regardless of the stock’s price.
The investor chooses a stock and the quantity they want to buy. However, the order will be executed at the brokerage house’s discretion. This means the broker determines the moment and the systems to be used for the execution.
The investor chooses not only the quantity of the stock, but also the maximum and minimum prices to be paid for it. This means the command will only be executed if the price is the one appointed or better. As a practical example, if a client wishes to purchase stock for R$ 5.00, it’ll only be bought by the broker for that specific price or better – meaning lower than R$ 5.00. If they want to sell for the same R$ 5.00, the order will only be carried out if the price is exactly that or better – in this case, meaning higher than R$ 5.00. This is the most common type of command given when using the Home Broker tool.
This happens when the investor is looking to buy one asset and sell another. However, the instruction is such that both deals have to be carried out at the same time. They can choose one order to be carried out first, but the other necessarily has to follow.
For this type of order an investor sends to different buy and sell orders of the same asset. As a practical example, they request an asset be bought and, following that, they send a forward cash sale order. As soon as one takes place, the other will be in sequence.
Stock is usually grouped in 100 share lots. Meaning one can only buy shares at a minimum of one lot per transaction – or 100 shares of that specific stock. There is a fraction market however, where prices are slightly different. Here, an investor can buy fractions of lots.
For this type of order, the investor will pre-define a trigger price and an execution price. The trigger will operate as a warning – when the Market reaches the trigger level, an execution order will be pushed forward, trying to buy or sell assets either in the same price as the trigger, or slightly above or below. The risk with this type of command is overpricing – or underpricing – the execution value, and losing the opportunity to close a deal.
This command is a variation of the Start Command. The difference here is that, instead of one execution value, the investor will determine an execution interval – a range for which they want to buy or sell the stock once the trigger value is reached. As an example, if a stock is sold at R$ 10.00 and the investor want to sell those stocks, for example, at R$ 10,50, he can gives an order on Home Broker, and put a trigger at R$ 10,80 to R$ 11,00. If the price reaches R$ 10,50, the order is given to sell the stocks at R$ 10,80 to R$ 11,00. The stock will be sold at the negociated price, in a range between R$ 10,80 to R$ 11,00.
This is one of the most important orders available in a Home Broker tool. In this case the investor will pre-set an interval – a range – at which the stock should be sold to prevent big losses. As a practical example, an investor bought shares at R$ 10.00, and has determined the maximum loss they’re willing to endure is 10%. So they pre-set a Stop Loss command that will push the sale of these shares once the market reaches R$ 9.50, and keep unloading them until the R$ 9.00 (or the maximum 10%) level. This means the investor will have a maximum loss of 10% even if he’s not monitoring that share closely.
The risk with this type of command lies with the possibility of the stock falling more than the maximum pre-set loss trigger overnight. In this case, our investor’s stock would’ve fallen from R$ 10.50 when the market closed, to an R$ 8.50 level when it reopened. This means the Stop Loss trigger was not reached and the order, therefore, not executed – thus pilling on the losses to well over the 10% limit. The Stop Loss is an invaluable tool, but it doesn’t exempt the investor from closely monitoring their portfolio.
This command is a variation of the Stop Loss tool. It’s a great option when one has very clear pre-set earning goals, and wishes to ensure they’ll be met in a shorter term. The mechanism is exactly the same as the Stop Loss tool, and so are its risks, if not closely monitored.
The greater risk for the investor that opts for the Home Broker is the internet connection. Should the connection be too slow, one could lose the market timing. Should it not be dependable, the order given might fail to reach the market entirely. Another crucial point to consider is security. Virus, malwares and malicious software could steal the Home Broker password and cause a lot of damage.