Banks are the most important participants of the financial intermediary system. By definition, a bank is an institute offering financial services. Its two main activities are: providing loans and collecting deposits. Banks collect the savings currently not in use (passive banking) and pump it into the part of the economy where funds are needed (active banking). Thus, banking is the motor of the modern, capital-based economy. Banks have two main revenue sources: fees of the different financial services and interest rates of loans.

A broker is someone who buys and sells goods or assets on behalf of his or her customers in exchange of a brokerage fee. The deals can be executed both on the stock exchange and outside the stock exchange. Brokers also trade with securities and may be entitled to execute different account transactions. According to the new Hungarian securities regulations, the former requires a registered capital of HUF 20 million, while the latter requires HUF 100 million. Besides the required capital, a professional (the broker) must be nominated to act on behalf of the investor. In order to execute the orders of the clients, the broker must have a professional securities examination certificate, have at least two years of professional experience on the securities market, and must be morally irreproachable. In Hungary, the activity of trading with securities must be executed through specialised companies. However, on the commodities exchange and on the futures market of the Budapest Stock Exchange, individual brokers are also allowed to become members.

The main task of brokerage firms is to act as an agent for securities trading. This means that the investment service provider acts in its on name, but on behalf of another person (the customer) to sell or buy. The investor enters into a contract of agency with the chosen brokerage for every single sell or buy order. The contract of agency must clearly specify the financial product to be traded, its price and quantity, and the nature of the order (sell or buy). The legal and financial conditions of the orders are recorded in the general business rules of the brokerage (complying with statutory requirements). The fee of the services may vary for the different brokerage firms.

The two main types of orders made by the investor are the following:

• In case of a sell order, the customer sells his or her securities. If the security has a physical form, it needs to be handed over. If the security exists on an account, it should be transferred to the brokerage firm’s account.
• In case of a buy order, the customer buys securities and must pay in exchange accordingly. The amount to be paid consists of two parts: the price of the security and the commission of the agency. In both cases the settlement happens only once the order has been fulfilled.