Difference Between Discount Brokers and Full Service Brokers

Difference Between Discount Brokers and Full Service Brokers

by 5paisa Research Team Last Updated: Dec 09, 2022 - 08:07 pm 103.2k Views
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With increasing digitisation in India, all the sectors across the country have been witnessing a humongous shift and the brokerage industry has been no exception to this. With these changes the retail brokerage business models today can mainly be classified into two types, first are the full service brokers and the second are the discount brokers. Both are quite different in terms of services and features, and choosing between the two purely depends on personal needs and preferences. Finding a right market intermediary or broker is of vital importance to make good returns in the long run. Your broker should very well fit into your investment objectives. Let’s start with understanding why are brokers needed and how are the two types of brokers different from each other.

Getting to the basics, we all know that irrespective of the type, every broker is a registered member of exchanges regulated by the Securities and Exchange Board of India (SEBI). Any transaction in stock market; be it buy or sell, requires a broker’s intervention.

Full-service Brokers:

A full service broker is a traditional broker. These brokers provide advisory and trading facilities in stocks, commodities and currencies. Some of them also offer advisory, research, asset management and retirement planning services. They generally have multiple branches and offices across the country and charge commission in percentage

That is proportional to the total amount of trade clients execute. Clients can generally walk into any of their branches and offices directly. They also allow trading of various financial instruments such as pension plans, forex, mutual funds, bonds, insurances, FDs and IPOs.

With this comprehensive bouquet of services, the cost of the traditional brokers are also much higher, which might end up consuming a huge chunk of your profits. If you closely inspect the extensive services offered by them, you would realise that they do not offer as much value. So a traditional or a full service broker can prove to be a good option for the investors who have good budget and resources to find someone to take care of their investments.

Discount Broker:

A discount broker as the name suggest, offers essential services - like carrying out buy and sell orders at highly competitive rates. These brokers generally use online platforms to offer services, which makes the entire process of trading available at your figure. Apart from benefits like the ability to trade remotely, these days discount brokers like 5paisa are also offering research and advisory services like any other traditional broker, all at the discounted rates. Further, since almost 100% of the business of these brokers is online, the platforms they provide are high-end and work seamlessly. Even discount brokers these days have started offering a plethora of service like investment in Mutual Funds, Gold, and FnO amongst others while promoting the idea of self-investment.

People who are looking at services that offer value for money, prefer trading on the go, want to have access to real-time data, prefer minimum human intervention when it comes to finances would want to go for discount brokers. Though these brokers do not have any or perhaps have minimal offices to walk in, their customer support systems are strong, so you can contact them anytime you need, and that too at the convenience of a call or an email. Further, as the processes are completely automated there is minimal human interference thus reducing the room for error when carrying out the process.

Stock market is one such place that has the potentials to offer inflation-beating returns if you are invested for long term. Before deciding on which type of broker to go for, it is always advisable that an investor should first understand these two options by comparing the services and features, charges, minimum opening balance clauses amongst others.

Factors

Full-Service Brokers

Discount Brokers

Service

Advisory for shares, mutual funds, bonds, currencies, commodities etc

Provides all-in-one trading platform

Brokerage

Average daily brokerage is 0.3%-0.5% per trade

Flat trade fees charged per transaction irrespective of the order value

Presence

Operates through a number of branches

Provides online services

Suitable For

An individual who seek hand-holding along with trading tools

An individual who intends to go for self-investment

Deciding Parameters

a) Brokerage & Other Charges
b) Research Desk
c) Customer Service
d) Leverages Funding

a) Brokerage
b) Services offered
c) Customer Support
d) Call & Trade Facility

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