Brokers and Online Trading: Full Service Or Discount?
AAA
  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. Strike Width

    The difference between the strike price of an option and the ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  3. Reference Equity

    The underlying equity that an investor is seeking price movement ...
  4. Boundary Conditions

    The maximum and minimum values used to indicate where the price ...
  5. Delta-Gamma Hedging

    An options hedging strategy that combines a delta hedge and a ...
  6. Gamma Hedging

    An options hedging strategy designed to reduce or eliminate the ...
  1. How can an investor profit from the increase in popularity of discount brokerages?

    Find out how investors benefit when brokerages compete with each other, and how discount brokerages are changing the market ...
  2. What is the difference between issued share capital and subscribed share capital?

    Find out about the difference between subscribed share capital and issued share capital, including an explanation of the ...
  3. Should investors focus more on the current yield or face value of a bond?

    Find out when investors should focus on a bond's current yield versus its face value, including an example of how current ...
  4. How do I calculate the expected return of my portfolio in Excel?

    Find out how to calculate the total expected annual return of your portfolio in Microsoft Excel using the value and return ...

You May Also Like

Related Tutorials
  1. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  2. Economics

    American Depositary Receipt Basics

  3. Investing Basics

    Stock Basics Tutorial

  4. Options & Futures

    Binary Options Tutorial

  5. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!