The Differences Between A Full-Service Broker And A Discount Broker
A lot of new investors struggle with the first and most important step towards starting their investment portfolio. And that is choosing a broker. There are several options available to you, and the overwhelming amount of companies to choose from may make the decision difficult without proper knowledge. Stockbrokers can be classified into 2 types; Discount broker and Full-Service broker. Choosing the right broker type as per your trading requirements will help you get good value for money. This article will discuss discount broking and full-service broking, the difference between the two and when to choose a discount broker and when to opt for a full-service broker.
The Full-Service Brokerage
A full-service brokerage still allows you to sell securities like stocks, mutual funds, and ETFs. The options that are available to you is the difference between a full-service brokerage and a discount brokerage. Full-service brokerages tend to offer a large number of products and services like retirement planning and portfolio advice that discount brokers simply cut out. And they typically charge a percentage from you. These fees can be anywhere from 1-3% of your total portfolio.
Suppose you got the average return of the stock market is 7%, it is a substantial amount of your investment returns paid to the money managers. These large fees are partly the reason that full-service brokerages are starting to lose a substantial amount of customers.
Full-service brokerage firms offer their services both online and offline. They also conduct technical and fundamental analysis and publishes various reports on stocks, companies and markets.
The Discount Brokerage
Stock trading has gone online. This has led to the emergence of a new breed of brokers called discount brokers in India.
The discount brokerage firms are getting popular among traders. They provide low and fixed brokerage plans wherein they charge a fixed brokerage fee irrespective of the trade value. For example, Bengaluru based discount Broking Company Zerodha charges a brokerage fee of ₹20 per order on equity intraday. So whether your trade value is ₹10,000 or ₹10 lakhs, the brokerage charged will be the same.
Unlike traditional brokers, they offer limited services at a cheaper price. They offer their services online and have a very limited physical presence which helps them save money on employees and infrastructure.
The services offered by discount broking companies vary but most of them do not provide research services, IPO application services, and investment services in Mutual Funds, Bonds, FDs etc. This also helps them save money on licensing and resources.
