Do you know how many types of stock brokers are there? Here we shall be highlighting the most common stock broker types i.e. full-service and discount brokerage firms prevailing in the market.
Investing in stocks can be a tricky business sometimes. You need a good understanding of the market, a close watch on the changing trends as well as on the fluctuating price of the held stocks. But who’s got the time for all that? That’s where stock brokers come in. They provide you a platform to trade conveniently. How? Let’s find out.
Who is a Stock Broker?
A stockbroker is a licensed individual/company that facilitates buying and selling of securities such as equity, mutual funds, bonds, IPOs, ETFs, currency, basically every trade security you can think of, to both retail and institutional investors.
Every broker is affiliated with specific stock exchanges and is allowed to trade in them only. Basically, they make the whole process of trading user-friendly by providing tools and trading platforms that can easily be accessed by a mere beginner. From opening the brokerage account to telling you what and why to buy, to actually handling and managing the securities after purchase, Stockbrokers take care of it all for you.
And of course, nothing comes without a cost! They charge a certain amount of fees or commission for the services provided. It is referred to as “Brokerage” and is different depending on the company and kind of broker they are. Which brings us to the question of How many types of stock brokers are there? What is the difference and who is better?
Don’t worry, we got you. By the end of this article, you’d be able to decide the kind of broker you want to hire for your needs.
You may also like to read What is Broker? Meaning & Types of Brokers
Types of Stock Brokers
There are mainly three types of brokerage firms:
- Full-Time Broker
- Discount Broker
A discount broker is, as the name suggests, a discount version of a Full-time broker. It also facilitates buying and selling securities but the array of services provided is lesser than that of Full-time brokers and hence, they are comparatively cheaper.
Let’s explore through both the types:
Full-Service Brokers: Meaning & Services
A Full-service or traditional broker offers services like financial planning. tax saving, portfolio creation, offering financial advice, etc. together with trading facilities and market watch. It is a complete investment solution offered by companies to their investors.
A full-service broker will perform market research and analytics to come up with recommendations, provide you with different platforms like website-based, terminal-based, or mobile application based to help you trade at your convenience and undertake transactions on your behalf.
On the platforms, you can customize your portfolio and keep a watch on what you have bought easily. In addition to this, some brokers provide educational areas like training webinars, infotainment videos, live sessions, and more to help you make better investment decisions. Full-service brokers usually charge brokerage on % of trade basis as a small part for helping you make big cash.
Some of the top full-service brokers in India include: ICICI Direct, ShareKhan, HDFC Securities, Angel Broking, and Axis direct. The ones with banking father bodies also offer a 3-in-1 account facility for investors to link their bank account, Demat account, and trading account.
To sum-up, full-service brokers offer range of additional services beyond the usual buying and selling of stocks.
Discount Brokers: Meaning & Services
A Discount Broker on the other hand mainly focuses on the buying and selling activities with little or no interaction with the live trader. You make your own decisions here and the stock broker just provides a trading platform for you to store and manage your securities.
Discount brokers mostly offer low fee accounts, so its great if you want to try out trading for the first time without putting in any extra money.
Do have a look at the Best Discount Brokers in India
They don’t advise you regarding financial planning or portfolio management. However, it is quite common for discount brokers to offer free research and educational material. They allow trading in equity delivery, currency, intraday, equity future, commodity, and sometimes Mutual Funds. Discount brokers prove beneficial if you-
- Don’t want to pay high fee/commission to brokers
- Prefer doing your own research
- Mainly want to trade and not invest
- Prefer online trading with little or no physical presence
Moreover, a number of discount brokers have their own direct-access trading and investment platforms catering to the requirements of active day traders.
Discount Broker Examples:
First Trade, Fidelity, TD Ameritrade, Merrill Edge, Robinhood are some of the popular discount brokers in the United States.
Similarly, the top discount brokers in India include Zerodha, Upstox, 5Paisa, etc. They are known to provide convenient and economical trading activities to the investor with a flat fee brokerage model.
Online Brokers or Direct-access Brokers
A yet another categorization of stock brokers offering direct access online platforms that don’t provide any physical office locations as such. Typically, online brokers are of two kinds:
- Virtual Brokerage Firms: These don’t have any physical offices.
- Online Branches of Full-service/ Discount Brokers
The biggest advantage of online brokers is the easy and convenient 24 hour access to your account, regular tracking of your portfolio and latest market updates. Best suited for active day traders, online brokers ensure flexibility and lower commissions as compared to traditional brokers.
Fidelity, TD Ameritrade, Interactive Brokers, etc. are some of the big names ranking pretty high in the best stock brokers list in the United States.
Likewise, Zerodha, Upstox, 5paisa, etc. have made their mark in the online stock broker industry in India.
Stock Broker Types: Which is the Best?
Both full-service and discount brokers have their own pros and cons. You pay more for availing more services and visa versa. That’s how it is! So set your goals before choosing the kind of broker you want to use. Do you want to trade or invest in the long term? Can you perform your research or would you like a helping hand?
Are you interested in stock trading, not to miss out, the Stock Market Basics for Beginners.
Choose what is best for your financial health and let us know which one you picked and why? Do share your feedback on any of the stock brokers you like.
View Comments (1)
Interesting read! As a beginner investor, I'm curious to know more about the differences between full-service and discount brokers. Can you provide more examples of each type and their respective advantages and disadvantages?