Who is a discount brokers?
A discount broker is a stock broker who carries out the trade (buy and sell orders) at much-reduced commission compared to full-service brokers. Discount brokers don’t provide any investment advice.
Previously, Brokers were used to be only by people with large funds to invest and those who could afford them could get access to the stock market. But now the internet has brought out the huge requirements of discount brokers which allow clients to trade at a very minimal fee (commission). This concept mainly focuses allow nearly anybody can afford to invest and trade in the market.
It is the best option for those who wish to carry out their own research or who don’t want to invest a large amount of money in the market. Typically, discount brokers only provide an advanced electronic trading platform to trade.
All brokerage firms, including the discount and the full-service discount brokerage, are regulated in the same way by the financial regulatory authority that is SEBI.
How is a discount broker different from a full-time brokers?
- Workings: Full-time broker has to undergo in-depth research regarding different financial instruments available to give the best advice to the clients to pool in their funds and invest. Whereas, a discount broker doesn’t undertake any research and also not responsible for catering any financial advice to its clients.
- Risk: Being associated with a full-time broker, the client can get regular updates about the market. It also helps clients, to take decisions regarding play for long or sell the investment at different points of time. But being with a discount broker, clients have to make their own strategies and subsequently execute it. So, clients have to forgo the latest information and gather it by themselves to keep the investment updated.
- Profit: Full-time brokers charge a hefty amount of commission based on the volume traded. On the other side, the discount broker might charge a flat amount or very minimal commission based on volumes traded. An investor will be profitable by saving the commission being with discount brokers.
How to choose between a full-time broker and a discount broker?
- Risk: if an investor is a risk averse or a low-risk seeker they must go with the full-time broker as, an investor will be exposed to fresh refined information of the market and, can minimize the chance of losses.Whereas if the investor is a risk taker, then should opt for a discount broker. As a discount broker doesn’t give any advice and the commission charged by them is also less.
- Frequency of trade: If an investor is very frequent on trade and investment they must be backed with the latest information about the market, so discount broker is advisable. And, if an investor wants to invest for the long term should be with a full-time broker.
- Level of knowledge: Investors with more knowledge and more frequent investors generally anticipate the market moment easily and hence, require less knowledge. So, a discount broker would be advisable. On the other hand, an investor with less information about market and trends should be with Full-time brokers to avoid the prospective losses.