Broker vs. Exchange: what’s the actual difference?

Start with the exchange. Think Euronext, LSE, NYSE, NASDAQ, CME. The exchange runs the venue: it lists instruments, maintains the order book, operates opening and closing auctions, enforces circuit breakers, and polices market abuse. Its obsession is market integrity: clear rules, fair access, real liquidity, clean prints. An exchange does not manage your account; it matches orders and publishes prices. It is infrastructure, not your agent.

Now the broker. This is the firm you actually deal with when you open an account, verify your identity, transfer funds, place orders, use margin, or request statements. The broker’s job is to route your order to the right destination under the right constraints, confirm the fill, safeguard your assets (often via a custodian), and keep your books straight.

Regulators hold brokers to client-facing duties—know-your-customer checks, product suitability where relevant, and, crucially, best execution. That last one sounds bureaucratic, but it’s where money is made and lost: practical best execution weighs price, speed, likelihood of fill, venue fees, and slippage, not just the prettiest quote on a screen. Follow a single trade to see the split. You click “buy.” The broker checks cash or margin, then decides where to send the order: a lit exchange book, an alternative trading system or MTF, or a market maker quoting two-sided prices.

The chosen venue—often an exchange—matches your order against resting liquidity and prints the trade. Afterward, clearing houses and central depositories move risk and legal title; your broker updates your position and cash. The exchange never mails you a monthly statement. The broker does.

Fees underline the difference. Exchanges earn transaction fees and market-data revenues; they are paid for running the arena. Brokers charge commissions, platform and data fees, FX markups where applicable, and financing if you borrow on margin. Your all-in cost is the combination of those elements minus any price improvement achieved by smart routing, plus the venue fees embedded in execution. Two investors can hit the same exchange price and walk away with different P&L because their brokers routed and financed differently.

Custody is another tell. In listed equities and futures, exchanges don’t hold client assets. Custody flows through brokers and their custodians, while central counterparties set margin rules that brokers must enforce. When volatility spikes, it’s your broker (or FCM in futures) who calls for margin—even though the parameters come from the clearing house and the exchange rulebook.

Not every trade touches an exchange. A share of turnover happens off-book: negotiated over-the-counter, internalised by dealers, or executed on alternative venues. In Europe, MiFID II distinguishes regulated markets, MTFs, OTFs, and systematic internalisers; in the U.S., Reg NMS governs routing and access. The economic split still holds: the venue is about price formation; the broker is about client agency and duty of care.