Discount brokers are a popular option for stock market investors with limited money. On the other hand, high net-worth individuals with crores to invest and lot of wealth to manage depend on full service brokers. The difference between a full service broker and a discount broker is significant. A full service broker not only carries out buy and sell orders, but also takes investment decisions on behalf of their client. Contrastingly, a discount broker will only carry out your buy and sale orders. He or she will not render any advice on stock buying and selling. However, some of the best discount brokers will offer investment guidance also mostly with the help of software.
Discount broker versus full service broker
Fixed commissionversus percentage of trade value
Even the best discount broker in India 2017 charges only a fixed commission unlike a full service broker who charges a percentage of the trade value. The trade value is higher for high net-worth individuals since they invest huge amounts of money. These people can afford to pay a good commission to their brokers. But, investors with limited money cannot afford to do so. So a fixed commission is beneficial for such people.
Frequency of trading
People who trade only few times a year cannot afford to pay commission to stock brokers since that will erode their return significantly. High net-worth individuals carry out trading frequently. Their return is also significantly high. So they can afford to pay commission as a percentage.
Online versus offline
Full service brokers can be reached both online and offline. Since these brokerages render financial advice and service to their clients, they are mostly a phone call away. On the other hand even the best discount brokersis mostly available online. Here the client need not discuss matters with the broker. The broker only carries out buy and sale orders. This can be done mostly online.
Knowledge of money market
Since a discount broker only carries out buy and sale orders, the client needs to have a good understanding of Finance in general and Stock Market in particular. If he is not adept and up to date in these fields he is going to lose money. On the other hand, a full service broker takes investment decisions on behalf of the client. So a high net-worth individual need not always have a very good acumen about working of the financial and stock market.
A discount broker is only facilitating your buy and sell transactions. It is not investing money on its own. So there is less chance of unfavorable buying decisions. This means that your money is safe. However, a full service broker takes decisions on its own. Moreover, it is enticed to high number of trades since this will generate more commission for the brokerage company. This means that your money is not so safe as it is in a discount brokerage.
Discount brokers may also offer cheaper insurance products at cheaper commissions. Full service brokers generally don’t offer insurance products. However, it is a fact that discount brokers offer only basic service when it comes to investing in stock market.