A discount broker is a stockbroker who carries out buy and sell orders at a reduced commission compared to a full-service broker but provides no investment advice. 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 let individuals with smaller capital to trade at a smaller fee.
Unlike full-service brokers, discount brokers do not provide personal consultations, advice, research, tax planning, and estate planning services for customers.
Why Use a Discount Broker
Discount brokers carry out orders at cheaper costs but they typically just provide order execution for their clients. Aside from not providing extra wealth management services, discount brokers offer lower fees because they do not spend money closing deals with high-net-worth individuals and most of them today operate their businesses online. (For more, see: Robo -advisor).
Full-service brokers are a better option investors who need professional investment advice or who want to stay on top of their financial planning. 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 most of investment and trading returns, some individuals opt to go for products offered by discount brokers instead.
Discount brokers are particularly useful to investors and traders who actively trade on a frequent basis since lower commissions do not eat too much of their profits. 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, interaction with live brokers are 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 financial services fields. Discount brokers in the real estate industry help individuals buy and sell real estate 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 at discounted prices. Because of the lower commission and cheaper products, these brokers do not provide professional financial advice.