The advent of the internet and better technologies has opened the door for people to become stock brokers. Unlike in the past, when only a particular class of people had access to the stock market and the brokerage industry. Placing a buy or sell order today only requires an internet connection, a bank account, a Demat account, and a smartphone. This has led to the emergence of a new species of brokers, known as discount brokers. They do not get premium services for the stock market. They only provide the basics required to perform your stock transactions.
What is a discount broker?
A discount broker is a brokerage firm that offers the lowest brokerage for buying and selling stocks. They provide a simple trading interface to clients and allow them to open Demat & Trading accounts to trade in the share market. The brokers work at a discounted commission rate to accommodate their clients. They also provide an online execution platform and do not offer advisory and other services. Thus, the primary appeal of a discount broker is for investors who manage their own investments.
Discount brokers do not spend money vying for the business or working with high-net-worth individuals. They also always do business exclusively online. These help them operate with lower fees and fixed plans. Currently, the internet is giving a boost to discount brokerages. These have attracted many new traders, mostly young and tech-savvy.
Understanding the importance of discount brokers
The evolution of technology has revolutionised the way investors conduct trading. Many discount brokers have come into the foray. These enable investors with small capital to trade at lower fees. Their affordability lies in their online business activities, which translates to lower overhead costs. The commission they charge is fixed, irrespective of the trade value. Discount brokers have little to no physical presence. Furthermore, they do not offer services like customised research and planning, personal consultations, advisory, or tax planning to their customers. These help brokers save costs of hiring employees and spending money on office infrastructure.
Pros of using a discount broker
Low cost
Discount brokers offer the lowest brokerage charges compared to a full-service broker. These help investors convert trades into profit with a low Break Even Point.
Online trading terminal
Discount brokers mostly work centralised. That means an online trading terminal is the best way to manage the client. They also offer the best Online Trading Terminal free of cost.
Unbiased offer
Discount brokers charge new investors and old investors the same. It does not matter if you are just starting as a new investor or have been in the industry for many years.
Flat brokerage charges
They offer their clients flat brokerage charges irrespective of trade volume. Whereas a full-service broker charges you as per % of your trade volume.
Low transitional cost
Most discount brokers offer the lowest transactional cost for their clients. This is due to the high volume of trade they carry out daily.
Transparency
Discount brokers offer 100% transparency in all their costs – Brokerage Calculator, Margin Calculator, Charges Sheet, Trade Confirmation.
Clients education
They offer online educational video tutorials for their clients. They make their clients learn and trade with them for a longer time.
Paperless account opening
Discount brokers offer Paperless Account Opening. That means opening an online trading account in 10 mins.
No minimum brokerage
Unlike full-service brokers, discount brokers do not charge minimum brokerage for their clients. Therefore, a discount broker is the best option if you want to buy or trade in penny stock.
Cons of using a discount broker
No relationship manager
Discount brokers do not offer relationship managers and branch support like full-service brokers. Are you too busy to check your online portfolio regularly? Or do you need someone to manage your stocks and mutual fund portfolio? A discount stock broker is not good for you.
All-in-one roof
Full-service brokers provide many options for their customers under one roof. Discount brokers on the other hand mostly offer stock investment and mutual fund investment options to their clients.
No advisory and PMS services
Discount brokers do not offer advisory services to their customers. They also do not offer portfolio management services to their clients. Whereas, the full-service broker offers their client advisory service free without any cost.
No 3 – in – one
Unlike full-service banking brokers, discount brokers do not offer 3-in-one account opening. This means banking, trading, and Demat account opening.
To sum it up
The number of stock brokers and investors in India continues to increase every day at a rapid rate. This is because it is obviously not affordable for all traders to trade through traditional brokers with their prohibitively high charges. Discount brokers offer multiple advantages that facilitate Indian investors, and they are peaking in popularity nationwide.
