A discount broker is a licensed stock broker who executes buy and sell orders of clients at reduced commission rates. A discount broker does not provide investment advice, tax planning, estate planning, research and other services which a full service broker does.
The advent of Internet and better communication technology has made the stock market accessible to the common man. All one needs is an internet connection, bank account, de-mat account and a smartphone to start investing in stock markets. Improved technology gave rise to discount brokers worldwide.
Discount brokers make it possible for small investors and individuals with low capital to invest in stock markets. Discount brokers operate through online platforms. An investor normally does not interact with a live broker or relationship manager in a discount brokerage firm. The services provided by discount brokers are targeted at ‘do it yourself’ investors and traders who know what trades they want to get into.
Benefits of Discount Broker
- Lower commission charges – This is the most important benefit of engaging with a discount broker. They generally charge a flat fee per order irrespective of the order size and amount.
- Digital Services – Discount brokers provide digital services right from opening a de-mat account to placing orders and generating reports. They have an online presence only and tend to provide advanced technology and research tools which are user friendly.
- Learning material – Most of the discount brokers have ‘self help’ learning articles, modules and webinars on their site which provide new investors, beginners with useful information on investing and trading.
Disadvantages of Discount Broker
- No physical offices – Most discount brokers only operate online. They have no physical office locations. Investors who are used to trading in a broker’s office or consult financial advisors before trading may not find the discount broker suitable.
- Minimal interaction with broker – Discount brokers do not provide financial advisors or relationship managers to clients. There is minimal to no interaction with a discount brokerage firm.
- Limited services – Discount brokers generally do not provide services like portfolio management, investment advisory, investing in international markets, estate planning etc.
Full Service broker v/s Discount broker
| Full Service Broker | Discount Broker |
| They are traditional brokers offering a wide variety of services to their customers like investment advisory, wealth and portfolio management, and customized research. | They are stockbrokers who provide basic trading interface to execute buy and sell orders of clients at reduced commission rates |
| They have physical office locations across the country. | They have no physical office locations. All operations are online only. |
| They charge a high brokerage, commission due to the wide variety of services they provide to customers. | They generally charge a flat fee per order irrespective of the order size and order amount. |
Discount brokers are best suited for investors who do their own research, study and analysis of stocks and then enter into trades. It is also suitable for small capital investors and traders.
Image credits: Image by Rotjanat Mingkhwan from Pixabay
