Introduction

You cannot guarantee to make a profit all the time in the stock market but you can definitely save a lot of money by choosing the right broker.

In today’s digital era, there are plenty of brokers available to choose from which makes it difficult for a beginner in the stock market. Before you begin investing, you need to understand the two types of brokers i.e., Full-service brokers and Discount brokers. 

Choosing the right type of broker becomes essential to optimize your investment returns. Let’s understand the difference between the two in detail.

Full-Service Brokers

These are the traditional brokers who not only help in trading in stocks but also provide investment-related services to their customers. 

Their services include but are not only limited to portfolio management, wealth management, research, and advisory and trading platforms.

 One distinct feature of full-service brokers is that they provide both offline and online services. They employ a large number of people for their branch offices and franchisees which are spread across their area of operations.

They also employ a dedicated research team that conducts a technical and fundamental analysis of individual stocks and also analyzes the overall market sentiment. Their role doesn’t only end with research as they also periodically publish their research reports for the use of their clients.

Reputed full-service brokers like HDFC securities and Sharekhan have multiple branch offices present all over India. They also have relationship managers to assist their clients and provide personalized services.

Advantages of Full-service brokers : 

• Access to in-depth research on stocks which can be used to make better investment decisions.

• Helps in identifying your financial goals and investment objectives and achieving them strategically.

• Provides complete guidance to clients who lack investing experience and ensures the safety of their funds.

• Provides other services such as Insurance, tax saving tips, financial planning, identifying investment objectives, etc.

Disadvantages of Full-service brokers :

• High brokerage charges Most of the full-service brokers charge a very high brokerage which can have a negative impact on your investment returns.

• High volume transactions are charged lower brokerage whereas small or low volume transactions are charged higher brokerage. It might not be suitable for retail investors with lower capital.

• Cannot be trusted blindly. They are ultimately salespeople who make money when a trade is executed. Their focus might be on making the maximum number of trades rather than helping their clients.

Discount Brokers

There’s hardly any industry left which has not been disrupted by technology and the broking industry is no exception. The past decade has given birth to a new type of broker called discount brokers.

The key feature of discount brokers is that they only provide an online trading platform for investing.

 Their fixed or low brokerage plans are the reason why many investors are moving from traditional brokers to discount brokers. The fees charged are fixed irrespective of the size of the trade. 

For example, Upstox charges only Rs 20 for equity intraday whether you purchase 10 or 10,000 shares of any company.

 Since discount brokers carry out all their operations online, they save on expenses that are otherwise incurred on office and infrastructure facilities. This also helps them in cutting down the expenses incurred for hiring employees.

Advantages of discount brokers : 

• Low brokerage charges are the key feature of discount brokers. Since they provide only limited services, their costs are also kept at a minimum.

• Quick account opening process. It takes very less time to open a new account as everything is done online.

• Discount brokers provide unbiased services to clients as they do not offer any investment advice.

• Suitable for experienced investors who don’t depend upon advisory services.

Disadvantages of discount brokers : 

• No offline support to customers. They do not have offline branches to communicate with clients.

• No advisory support. It might not be suitable for those investors who do not have time to research on their own or are dependent upon brokers to get in-depth research and reports.

• No margin facility and hidden charges are also some of the drawbacks of discount brokers.

Conclusion

Although the difference between the two types of brokers is very obvious, it would be wrong to call one type of broker superior to the other. There is no one size that fits all.

Every investor or trader should choose the broker depending on his investment goals and service requirements.

 It is important to have clarity about the kind of services a person wants to avail of before approaching any broker.