A stock broker acts as a bridge between investors and exchanges. They buy and sell shares on behalf of investors. There are primarily two types of brokers in India: discount brokers and full-service brokers.
In this article we will study the difference between discount brokers and full-service brokers and understand how you can choose the right broker.
What are full-service brokers?
Full service brokers provide a wide range of services to their clients apart from just trade execution. These services include investment advisory, portfolio management, research, financial planning, etc. For providing a whole host of services, fees and charges charged by full-service brokers are higher than discount brokers.
Some full-service brokers also provide services like accounting, insurance, etc. This form is the traditional style of stock broking that has been prevalent even before the rise of computers. Full-service brokers can be appropriate for investors who want a hands off approach towards investing and can afford to pay higher fees and commissions.
Also read: Charting your financial future: The power of planning and forecasting
What are discount brokers?
Discount brokers provide only transaction services to their clients. They do not provide other services. These brokers provide online platforms where independent traders can place their orders themselves. They charge lower fees as compared to full-service brokers. As of July 2024, discount brokers accounted for 64.6% of total active clients on NSE.
Discount broking is a modern form of broking and has gained traction after the advent of the internet. This service is more appropriate for traders who are more in touch with markets and make their own trading decisions. Since, charges and commissions are lower traders who opt trading in derivatives and intraday trading might also choose discount brokers.
Difference between discount brokers and full-service brokers
- Operational approach: Discount brokers have gained popularity after traders received the facility of high speed internet. It is a more modern approach to trading and investing. The full-service brokers are more traditional and they connect with their clients. Although, full-service brokers also provide online trading services nowadays.
- Services: A full-service broker provides many services along with transactions. They help their clients with portfolio management, research, financial planning, etc. They regularly keep in touch with their clients. A discount broker, on the other hand, provides only basic transaction service.
- Fees & commission: Full-service brokers provide a wide range of personalised services therefore they charge higher fees, they may also have a minimum balance requirement whereas, discount brokers charge lower fees as suggested by their name ‘discount brokers’.
- Accessibility: Full service brokers usually have more physical branches as their work includes regularly meeting with tier clients to provide personalised financial services. Discount brokers do not have branches, they have a wide online presence and they may operate from a single headquarters.
| Criteria | Full-Service Brokers | Discount Brokers |
| Operational approach | Traditional approach | Modern approach |
| Services | Provide services like transaction, portfolio management, financial planning, research, advisory services, etc. | Provide only transaction services |
| Fees and Commissions | Charge a higher fees | Charge a lower fees |
| Accessibility | Network of physical branches and online presence | Mostly online presence |
Also read: How does arbitrage trading work?
Factors to consider before choosing a broker
- Investment style: An investor who wants to make their own trading decisions or a trader wants to practise intraday trading they may choose a discount broker because of their lower fees.
An investor who wants to adopt a hands off approach where they have limited involvement then, full service brokers might be appropriate for them. Since, full-service brokers provide services like portfolio management, financial planning etc.
This is appropriate for people who want to invest in financial markets but are busy in other professions and do not get time or do not have the knowledge about investing.
- Capital: Someone who has small capital may choose a discount broker since they charge lower fees. Whereas someone with significant capital who can afford to pay the fees can select a full-service broker to get various additional services that will help them in investing.
Sometimes a full-service broker can have a minimum investment criteria meaning to avail all the professional services they must have a minimum preset amount of capital in their trading accounts. An investor must clearly understand these criteria while choosing a broker.
- Products offered: Before choosing a broker try to clearly understand what products they offer for trading. Some brokers offer a wide range of products like equity, commodity, currency, bonds, ETFs, mutual funds, derivatives etc. While, others might be focused on equity and ETFs only.
Also make sure what are the rules regarding availability of margin. Different brokers can have different rules regarding margin trading.
- Customer service: Some investors may prefer brokers whom they can connect with via call or visit them in the office and they are willing to pay higher for it. Full service brokers are suitable in this case since they usually have branch networks.
Traders or investors can also choose discount brokers if customer interaction and support is not a criteria for them and they also want lower fees then they might choose discount brokers.
Also read: Mutual Fund vs PMS vs AIF: Key Differences
Conclusion
Choosing the right broker is the first step in the trading journey of any trader or investor. You can visit the website and compare multiple brokers before selecting the right one for you.
Make sure the broker comparison is on multiple parameters like fees, products offered, etc, and make an appropriate choice. You can always change your broker if you are dissatisfied with their services without even selling your stocks with the help of depositories like NDSL and CDSL. Read all the terms and conditions carefully.
FAQs
- What are discount brokers?
Discount brokers provide financial product transaction services to their clients. They charge lower fees and provide an online platform for trading and investing. Discount brokers became popular after people got a high speed internet facility. These brokers usually do not have branches, they primarily operate online.
- What are full-service brokers?
Full service brokers provide various other services like portfolio management, financial planning, advisory, etc, along with transaction services. Discount brokers charge higher fees. They operate through a network of physical branches. Some full service brokers also provide services like accounting, insurance etc.
- Do HNIs use full-service brokers?
It is not compulsory for high net worth individuals to use full service brokers. The choice of broker depends on their investment style. If an HNI wants to trade their capital themselves they can opt for a discount broker and if they need professional services they can use a full service broker.
- Which broker should a beginner use?
A beginner can use a discount broker if they are trying their hands in trading and want to learn more and also if they cannot pay the higher cost associated with full service brokers. But a beginner who is entering the markets with more capital who wants a hands off approach and can bear more costs can use a full service broker.
- What is the difference between a full service broker and discount broker?
The major difference between a full service broker and discount broker is in the services that they provide. A discount broker only provides transaction services whereas a full service broker provides a whole lot of services like advisory, research etc. Full service brokers charge more than discount brokers.
