Discount broker and full-service broker explained: Which one should you choose?
Any transaction that takes place in the stock market, whether buy or sell, requires brokers’ intervention. They work as an agent between the stock market and market participants. Choosing the right broker is essential for getting the right value for your money. In this article, we will discuss discount broking, full-service broking, and the difference between the two.
What is a discount broker?
A discount broker is the one that offers the cheapest, low-cost brokerage for buying and selling securities as compared to a full-service broker. These are technology-driven brokers that have a low operating cost. They only provide the trading platform to stock market participants but no sort of advisory. Discount brokers charge you a flat fee on each trade executed and can charge as low as Rs 20 per trade. However, they do not have many branches and so, when you use a discount broker service, you are essentially on your own and you do not have the added benefit of someone to offer you advice.
With increased financialisation in small cities, India is witnessing a sharp increase in the number of traders using discount brokerage services. Some of the popular discount brokers are Zerodha, 5Paisa, and Upstox.
What is a full-service broker?
Full-service brokers are the kind of brokers that provide research, trading, and advisory services in stocks, commodities, currencies, mutual funds, etc. Unlike discount brokers, they have a relatively high operating cost as they operate from many offices and branches across the country, which clients can visit in case of any query. They offer client-dedicated relationship manager, advisory, customised support, portfolio management services, financial planning services, and services relating to wealth management. Due to the additional services provided, the commission charged by the full-service broker is higher compared to the discount broker because the advisory makes up an important part of their cost.
Some of the popular full-service brokers include ICICI Direct, Motilal Oswal, Angel Broking, Sharekhan, Edelweiss Broking, etc.
Which one should you choose?
It is important to choose a broker that matches best with your investment needs. Investors who have significant capital to invest and also, pay for professional investment advice are typically more cautious & mature. Hence, they can go for full-service brokers.
On the other hand, investors with a small portfolio are not going to find it very logical to pay for financial advice which could eat away a chunk of their returns. There are also frequent traders in the stock market who require brokers to place buy and sell many orders in a day. These types of investors will benefit from having lower commissions and prefer discount brokers.
It also depends upon the knowledge and experience of the investors. If you have enough knowledge, time and are comfortable in making your own decision without any assistance, then a discount broker is good for you. On the contrary, if you are new to the market and do not mind paying extra commission for the advisory services to save your time, then you can go for a full-service broker.