A discount broker is a stockbroker who carries out buy and sell orders at a reduced commission rate. However, he or she provides no investment advice, unlike a full-service broker. Before the emergence of technology, only the wealthy could afford a broker and get access to the stock market. However, the internet has brought an explosion of discount brokers that allow individuals with smaller capital to trade, at a smaller fee.
Why Use a Discount Broker
Discount brokers carry out orders at cheaper costs, but they typically just execute orders for their clients. They do not offer personal consultations, advice, research, tax planning, and estate planning services for customers. Aside from not providing extra wealth management services, discount brokers can offer lower fees because they do not spend money closing deals with high-net-worth individuals. Plus, most of them today operate their businesses online, resulting in low overhead.
Whether one opts for a discount broker or a full-service broker depends on their investing and trading knowledge and skills, financial goals and needs, and current financial status. Since commissions typically take a healthy chunk out of investment and trading returns, some individuals opt to go for products offered by discount brokers instead.
Full-service brokers are a better option for investors who need professional investment advice or who want to stay on top of their financial planning. Discount brokers are particularly useful to investors and traders who actively buy and sell securities on a frequent basis. Investors who frequently trade especially benefit from the lower commissions discount brokers charge. Investors who don't need advice, have small portfolios, or just want their trades executed are also usually better off using discount brokers.
Where to Find a Discount Broker
In the securities industry, discount brokerages provide clients with their own accounts. These investors usually do not interact with a live broker. If they do, the communication is minimal and are only done for trade executions. The services provided by discount brokers are built for self-directed traders and investors. Their electronic trading platforms are also patterned in a way that would be beneficial and attractive for active traders.
Discount brokers can also be found in the real estate and other financial services fields. Discount brokers in the real estate industry help individuals buy and sell properties. These discount brokers also have access to the same home listings as full-service real estate agents. Discount brokers may also sell insurance products – though again, they do not provide professional financial advice.