Brokers and Online Trading: Full Service Or Discount?
  1. Brokers and Online Trading: Introduction
  2. Brokers and Online Trading: What Does A Broker Do?
  3. Brokers and Online Trading: The Costs
  4. Brokers and Online Trading: Full Service Or Discount?
  5. Brokers and Online Trading: Choosing A Broker
  6. Brokers and Online Trading: Accounts And Orders
  7. Brokers and Online Trading: Conclusion

Brokers and Online Trading: Full Service Or Discount?


What really sets brokers apart is whether they are full service or discount brokerages.

Full-Service Broker
The full-service category includes all the names that spring to mind when we think of brokers: Merrill Lynch, Salomon Smith Barney, Morgan Stanley Dean Witter and others. They provide a variety of services, such as personal advice, retirement planning and tax tips. Full-service brokers offer a wider selection of investment products such as derivatives and insurance, as well as access to the company's research. All this comes with a hefty price tag. Full-service brokerages are expensive, with commissions around $150. Furthermore, full-service brokers are compensated based on how much you trade, not the performance of your portfolio. This can lead to your full-service broker advising you to trade when you don't need to. When this becomes excessive, it is called churning.

Discount Brokers
Discount brokerages charge a reduced commission and do not provide investment advice. The best-known discount brokers are Charles Schwab and TD Waterhouse. Fees are kept low because discount brokers offer fewer products. Brokers are paid on salary and not on commission. The business model is built on having an effective system and quality service in order to put through the most volume.

Online Brokers and a Blurring Industry
A few years back, some spoke of a third category of brokerage - those with online trading systems. Today, hardly a discount broker exists that doesn't offer online trading. Trading over the internet has definitely benefited the self-directed investor. Commissions have been reduced and individuals exert greater control over their accounts. Online trading has affected the industry by blurring the line between full-service and discount brokers. As discount brokers become increasingly common, they are providing access to high-quality research, while the old-school full-service brokers now offer online trading options as well.

Brokers and Online Trading: Choosing A Broker

  1. Brokers and Online Trading: Introduction
  2. Brokers and Online Trading: What Does A Broker Do?
  3. Brokers and Online Trading: The Costs
  4. Brokers and Online Trading: Full Service Or Discount?
  5. Brokers and Online Trading: Choosing A Broker
  6. Brokers and Online Trading: Accounts And Orders
  7. Brokers and Online Trading: Conclusion
RELATED TERMS
  1. Warrant

    A derivative that confers the right, but not the obligation, ...
  2. Bull Call Spread

    An options strategy that involves purchasing call options at ...
  3. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  4. Markdown

    The difference between the highest current bid price among dealers ...
  5. Catalyst

    A catalyst in equity markets is a revelation or event that propels ...
  6. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
RELATED FAQS
  1. Are mutual funds considered liquid assets?

    Like your savings or checking account, any interest you own in a mutual fund is considered a liquid asset because it can ... Read Full Answer >>
  2. How can an investor profit from the increase in popularity of discount brokerages?

    Discount brokers generally don't improve profits by generating higher returns, although many purport to do just that. Rather, ... Read Full Answer >>
  3. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  4. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  5. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  6. What is the 'Rule of 72'?

    The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center