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Hello folks, people who are investing in any kind of assets e.g. stocks, cryptos, specious metals, forex, and you name it, you have to trade it either in an exchange or in a broker. But what makes them fundamentally different? Is COINBASE exchange or broker? Is Robinhood a broker or exchange? I think I will be able to make it clear.
Robinhood is a stockbroker, which was accused by the SEC of “payment for order flow”. Robinhood (Broker) doesn’t execute an order directly when you buy/sell a stock. Furthermore, it forwards the order to an exchange to be executed. In return, it gets some incentive from the exchange.
On the contrary, Coinbase is a well-known cryptocurrency exchange that makes it easy to buy, sell, and exchange cryptocurrency directly on their platform.
Which one is better?
Traders on exchanges are more at risk of slippage because they lack the price guarantee that a brokerage offers.
However, exchanges will give you ownership of an asset as soon as a trade occurs, whereas brokerages may take longer for everything to settle. A brokerage is also likely to charge a higher spread or fee than an exchange, meaning the end price may be less favorable.
Personally, I will always prefer exchanges rather than brokers to avoid any kind of manipulation from the broker side. To avoid any slippages on an exchange, one could use a limit order.
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