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Who is a Broker: Broker is any person engaged in the business of effecting transactions in securities for the account of others.

Sometimes you can easily determine if someone is a broker. For instance, a person who executes transactions for others on a securities exchange clearly is a broker.

Who is a Dealer: Dealer is any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise. His own account here means company's account

Who is a Trader: Individuals who buy and sell securities for themselves generally are considered traders and not dealers.

Who is an Agent: An individual or firm authorized to act on behalf of another (called the principal), such as by executing a transaction or selling and servicing an insurance policy.

Some more terms:

"Associated Persons" of a Broker-Dealer - representative of a Broker - Dealer.
Intrastate Broker-Dealers - A broker-dealer that conducts all of its business in one state
Broker-Dealers that Limit their Business to Excluded and Exempted Securities - A broker-dealer that transacts business only in commercial paper, bankers' acceptances, and commercial bills.

Execution of your Trade:

When you or your company places an order to buy or sell stock through online brokerage accounts, it will not directly execute at the securities markets, but instead your order would be sent to your broker - who in turn decides which market to send it to for execution. A similar process occurs when you call your broker to place a trade.

Options for Executing Your Trade:

Just as you have a choice of brokers, your broker generally has a choice of markets to execute your trade:

It can be sent to a stock exchange.
For a stock that trades in an over-the-counter (OTC) market, such as the Nasdaq, your broker may send the order to a "Nasdaq market maker".
Your broker may route your order – especially a "limit order" – to an electronic communications network (ECN) that automatically matches buy and sell orders at specified prices.
Your broker may decide to send your order to another division of your broker's firm to be filled out of the firm's own inventory. This is called "internalization."

Different Ways to Execute a Trade:

Electronic trading
On the exchange trading floor

Electronic Stock Trading

NASDAQ executes stock trading entirely online.Compared to the NYSE, which performs only a small percentage of stock trades electronically, NASDAQ uses computer networks to match buyers and sellers.

Electronic exchanges provide many conveniences to individual traders as well. It also nears you closer to the market since it provides you with real time interaction.On the other hand, if you are an individual investor, you will still need the services of a broker. This is required since as an individual investor you are not allowed access to the electronic markets. Once you have posted an order, the broker accesses the exchange system, which in turn finds a buyer or a seller.

Stock Exchange Trading Floor

Generally, people picture stock exchange as a big place, which with the beginning of the trading day is filled with brokers who shout over one another different numbers and words accompanied by gestures. The atmosphere is further enhanced by the various technologies, such as monitors, complex graphs, terminals and phones ringing from every direction.

First of all, the investor instructs his/her broker to purchase a certain amount of shares of a particular company. After receiving the order, the order department of the broker transfers the order to the floor clerk, who is on the exchange.

The floor clerk in turn contacts one of the firm's floor traders. The latter finds another floor trader who is willing and able to sell the shares the investor has ordered. The process is simple since floor traders are familiar with the floor traders that make markets for the specific stocks.

A negotiation follows between the two regarding the price of the shares. After they reach an agreement the trade is completed. The notification turns back the same channel until it reaches the investor's broker, who in turn notifies him/her about the final price.The whole process takes up to few minutes.

Clearance

The process of confirming that the two parties in an securities trade have conducted a valid transaction, i.e. they are in good standing and have the necessary dues to complete this transaction

Clearing Broker

A broker who provides clearing services for an executing broker, because the executing broker either does not have the infrastructure to clear for themselves, or does not have the financial profile necessary to qualify for self-clearing. The primary service of a clearing broker is to forward trade information to NSCC. The clearing broker is fiscally responsible for any delinquencies on the part of the executing broker.

Settlement

The act of securities changing hands. Settlement is the very final step of the trading process.

STP

Its an initiative from the financial services industry to optimize the trade life cycle attempting for T + 1 or same day settlement.

Straight Through Processing is the vision of automating the trading process from start (receipt of an order) to finish (trade clearance and settlement).

SWIFT - The Society for Worldwide Interbank Financial Telecommunication.

The standard for international financial communications is used by several thousand banks and other financial institutions worldwide. It covers customer payments, fund transfers, foreign exchange trading, securities/derivatives trading etc.

What is a Derivative

A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

The main types of derivatives are forwards(aka futures), options and swaps.

Forwards: A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future.

Most of the time the futures are never delivered, people keep buying and selling them and finally they tend to expire.

Options: Options are classified maily into 2 types, put and call options. When the market is going down people tend to go towards the put option, whereas when the market is doing well its call option.

Swaps: Credit Default Swaps, here is an example of how it works.

Suppose a buyer A buys bonds of worth of $5M of a company ABC, as an investor, he seeks protection against default on the asset he owns, now the insurance seller B is bank for example, receives a permium from the buyer throughtout the contract. Intern this seller B can assign the contract to seller C and it goes on, so finally who ever is the final party will pay the buyer A if the company defaults.

Internal Revenue Service - IRS

A US government agency which is responsible for the collection of taxes. IRS was established during President Lincoln's term and operates under the authority of the United States Department of the Treasury.

NASDAQ - National Association of Securities Dealers Automated Quotations is an American stock exchange.

Stock Market

A stock market, or equity market, is a private or public market for the trading of company stock and derivatives of company stock at an agreed price.

Security

A security is a negotiable instrument representing financial value. They are broadly classified into 2 types, debt securities and equity securities.

Equity

In business and finance, a share (also referred to as equity share) of stock means a share of ownership in a corporation (company).

DTCC - The Depository Trust & Clearing Corporation

NSCC - National Securities Clearing Corporation

ECN - Electronic Communication Network

A network that facilitates trading of financial instruments outside of stock exchanges, the products traded are primarily stocks and currencies. Inorder to trade with ECNs one must have account with the broker that provides direct access trading. The account holders will enter the trade via a ECN terminal or network protocols, the ECN will match the orders.

Fixed income - It refers to any type of investment that yields a fixed return ( "preferred stock" is also sometimes considered to be fixed income ). Fixed income securities are actually traded on the open market, just like stocks.