If you want to trade in the Stock Market it is necessary to trade with the broker. If you’re a novice or wealthy investor, you need a broker who trades on behalf of you. A few years ago, the brokerage cost that brokers charged was so large that it made it difficult for investors with small amounts to trade profitably. If you are a salaried worker who was thinking of investing a small portion of your savings each month into the stock market this wouldn’t be an extremely profitable venture for you due to the brokerage fee you had to pay. You need to know before investing the comparison of Full Service Broker vs Discount broker.
However, due to technological advances, there has been a dramatic shift in how the market functioned. Because of the growth of the internet, many brokers became online, thus decreasing their overhead costs. Full-service brokers, often are referred to as traditional brokers. They are more engaged with their customers, offering the financial information and guidance they need that is why they charge a high fee. On the other hand discount brokers only execute trades on behalf of their customers.
What are Full-Service Brokers?
A full-service broker manages your portfolio for you as your personal financial management, so that you do not have to stress about it. It’s similar to having a personal wealth manager who is responsible for your financial goals. Most full-service brokers offer to trade on the internet to their clients, which assists clients by offering analytical and technical support as well as order execution.
Zerodha, the largest discount broker in India, levies a brokerage fee of Rs 20 per order on stock intraday. The brokerage fee will be the same regardless your trade is worth INR 1,000 or INR 1 Crore.
What are Discount Brokers?
Discount brokers simply make the trades on behalf of their clients only. There is no consultation, advice or any other financial assistance is provided. Discount brokers do not have to complete the arrangement with high-net-worth people that require a full-time commitment. On top of that, they work online only which reduces their overhead expenses significantly.
| FULL-SERVICE BROKERS | DISCOUNT BROKERS |
| brokerage Charge depending on the size of the trade (typically between 0.3% to 0.7% per trade) | Flat Rs 20 per trade, irrespective of the trade size |
| Providing trade platform with advisory | Only provide trading platform |
| Dedicated research department to advisory clients on financial matters and portfolio | No such service is provided and the client completely invests on his own risk |
| Physical offices and online presence | Only online presence |
| The option of face to face customer service available | Online customer service limited only to transaction matters |
| Research reports, recommendations, tax matters, etc | Services only limited to trading |
| Commodities, currencies, FOREX, IPOs, FDs, Bonds, Mutual Funds, insurance, etc | Only current commodities, stocks, and current trading |
| Suitable for big investors who can’t afford losses and need expert advice | Suitable for small investors who can’t pay a chunk of their returns as the brokerage fee |
| 3 in 1 account i.e. Savings, Demat, and trading is available | Only Demat account is available |
| Advisory for shares, mutual funds, bonds, currencies, commodities etc.
|
Provides all-in-one trading platform |
| An individual who seeks hand-holding along with trading tools | An individual who intends to go for self-investment |
Conclusion
If you’re an investor looking to make a large investment then you must choose an all-inclusive conventional broker. A discount broker is risky and you may lose your money in the absence of professional financial advice. It is best to allow your broker to work in the best interests of your wealth, in exchange for an amount of commission.
However you may be not familiar with the stock market or want to make small investments of your money in the stock market to get better returns, an investment with a discount broker can be a good thing for you. A lot of discount brokers provide instructional materials on their websites to prepare you to embark on a brand new investment venture. Not only do new or small-scale traders use discount brokers, but it’s the option of decent investors, professionals with a salary who do not like the idea of sharing their earnings in full-service brokerages.