The brokerage industry, like every other sector, witnessed a change with the advent of the internet and better technologies of communication. Unlike in the past, when only a particular class of people had access to the stock market, placing a buy or sell order today merely requires an internet connection, a bank account, a Demat account and a smartphone which gave birth to discount brokerages.
The online brokerage is synonymous with a discount brokerage. They charge relatively less than a full-service broker. The full-service brokerage provides several other services, such as market analysis and investment advice. Currently, the internet has given a boost to discount brokerages. It is attracting new traders, mostly young and tech-savvy.
Difference between a discount broker vs. full-service broker
– Discount brokers mostly charge a low fee and provide service to traders who have comparatively smaller capital to trade with when compared to traders who go for full-service brokers.
– Full-service brokers do not just execute buy and sell orders for their clients; they provide a whole host of services like research on trending topics, sectoral and stock research, and tax planning, etc.
– Discount brokerages are mostly self-directed and very active traders. Therefore, the services are also centred around helping such investors monitor movements regularly.
– Full-service brokerages have physical branches at multiple locations and provide both online and offline services, unlike discount brokerages.
– The transaction cost charged by a full-service brokerage is higher than that charged by discount brokerages.
– Full-service brokerages have been there for ages, and therefore traditional traders may find the trading experience far better than discount brokerages. However, this could be the opposite for young traders.
Difference between discount brokers vs. full-service brokers and which to choose
Investors with a significant capital can afford to pay for professional investment advice and are typically more cautious and mature. Therefore, they go for full-service brokers. Such investors do not frequent the market and are long term players. A high net worth (HNI) is highly unlikely to go into the markets without a plan and sound knowledge, simply because a lot is at stake.
In contrast, investors with a small portfolio, do not find it logical to pay for financial advice, which could eat away a chunk of their returns. They are more frequent traders and require brokers to place buy and sell orders. Therefore, they can benefit from the lower commissions discount brokers charge.
Much also depends on the knowledge and experience level of a trader. Veteran investors with significant capital to invest may choose a discount broker as they have a better understanding of the market. However, most do not tend to do that. Therefore, there is no one size fit all brokerage service. It largely depends on your requirements and the size of the capital in which you want to invest.
Difference between a discount broker and full-service broker in other Industries
Discount brokers and full-service brokers are also found in real estate and other fields of financial services. Like stocks, the brokers in the real-estate sector help clients buy and sell properties. Typically, if you already have your eyes on the piece of property you want, you will ask for a discount broker and pay him or her a fee.
Full-service real estate brokers research the housing market and advise you to make a better choice. Both types of services are provided in the insurance sector too.
Trend in India
With increased financialisation in small cities, India is witnessing a sharp increase in the number of traders using discount brokerage services. Recently a popular online payment platform got the license for stock brokering services. Besides, several new companies established newly are gaining popularity among the young traders.
Discount brokerages are also benefiting from the current all India lockdown announced last month. Owing to market corrections, new traders are using this opportunity to get into the market who prefer discount brokering. However, the traditional traders with significant capital to invest mostly stick to full-service brokerages.
The type of brokerage service you avail mostly depends on the size of the capital a trader is ready to invest. It also depends on the experience, knowledge, and overall financial maturity of a trader. According to the current trend, young tech-savvy investors are flocking to discount brokers and traders with significant capital to full-service brokers. Therefore if you wish to choose between a discount broker and a full-service broker, you must review the size of the capital you want to invest and if you want a professional to advise and access more analysis.