Discount Brokers Vs Traditional Brokers: Knowing The Difference

Discount Brokers Vs Traditional Brokers

First of all, let’s discuss what a broker is.

Well, according to the SEBI, if you are a trader on a stock exchange, you must be routed through a member of the exchange, commonly known as a brokerage house. A broker or a brokerage house is an intermediary that gives you facilities for dealing with securities like mutual funds, ETFs, and others. Additionally, the brokers will not only help with transactions but also give investment guidance, provide retirement planning advice, do asset management, and give savings recommendations.

Brokers are basically divided into two types: one is traditional brokers, or full-service brokers, and the other one is discount brokers.

To understand the difference between discount brokers and full-service brokers in India, you have to know both of them first. Here we will be elaborating both the types with their pros, cons, key differences, and other information. So stay with us till the end.

Traditional Broker

A traditional broker, or full-service broker, gives a variety of services to the traders. In simple terms, they act like a financial expert to help the investors in making any of their investment decisions. More specifically, they provide research reports, retirement planning, do asset management, and give suggestions on stocks, bonds, and mutual funds that meet all your financial goals. Traditional brokers generally allow trading in various financial instruments, for example, IPOs, FDs, pension plans, mutual funds, insurance, and more.

Pros of Traditional Broker

Being a trader, if you’re choosing a traditional broker to get guidance, then you’ll certainly enjoy some benefits here. These are,

1. Traditional brokers provide comprehensive service. Starting from estate planning to retirement, they will cover everything.
2. Traditional brokers help you with research and market insights. Before making any kind of investment, research plays an important role. By doing that research, brokers can offer deep market analysis reports and some genuine recommendations.
3. One of the biggest advantages of traditional brokers is their guidance and personalised investment advice depending on an individual’s financial goals.
4. Investing in the stock market requires a lot of knowledge and time as well. If you lack both, then choosing traditional brokers can help manage your portfolio in a great way.

Cons of Traditional Brokers

Just like everything has some ups and downs, traditional brokers also have a few cons. Before hiding, you must be aware of them, so here they are,

1. As your portfolio will be managed by the traditional brokers, you’ll have limited control over individual trades. That’s why this option is better for those who have less knowledge about the stock market.
2. A conflict may take place over choices. Some companies or brokers might push you to sell any financial instrument, which seems much more beneficial for them and less beneficial for you.
3. When you hire traditional brokers, you have to pay a fee. Most commonly, it can be a commission, an account maintenance fee, or an advisory fee. If you take this service for a shorter duration, it will consume a lot from your profit.

Discount Brokers

If investment in the stock market becomes more accessible, then the entire credit goes to discount brokers. Unlike traditional brokers, you don’t have to pay any advisory fees. With the help of discount brokers, traders can make their own decisions and get suggestions for ETFs, trading stocks, and other securities at a much lower price.

This type of broker is ideal for those who do not want others to make their investment decisions. If you’re a beginner and have a small budget for investment, then also the online platforms of discount brokers would be an amazing option to initiate your first trading experience.

Discount broker examples include Angel One, Upstox, Zerodha, and others.

Pros of Discount Brokers

The benefits of a discount broker will certainly blow your mind and make you invest immediately. These benefits are,

1. The best part about discount brokers is traders have full control over making any investment decision. There will be no push from the opposite side.
2. In today’s generation, a lot of platforms are available for discount brokers. Using your smartphone you can download various types of apps and check online platforms to trade anytime and anywhere.
3. Discount brokers make investment execution faster. As you’re executing the investment through apps or websites, it will take a few seconds to initiate the investment.
4. We all know that traditional brokers charge a lot to provide any kind of services but discount brokers charge little to no commission for their services.

Cons Of Discount Broker

Just like traditional brokers have some limitations this discount broker also has some limitations. Check them out right below,

1. There will be nobody to guide you individually, so you’ll have to make your own investment decisions.
2. There are some platforms for discount brokers that provide research tools, but if you prefer comprehensiveness, it won’t offer you that.
3. Most beginners use discount brokers, but simultaneously, the lack of guidance can become daunting sometimes.

Full-Service Broker or Traditional Broker Vs Discount Broker

Features	Full-Service Broker or Traditional Broker	Discount Broker
Control On Trading	Yes, but often managed through advisors	Yes, complete self-control
Research	Comprehensive research reports	Limited research
Services	Entire wealth management service	Basic trading platform
Cost	High (% based fees)	Low (flat fee per trade)
Customer Support	End-to-end support	Limited support

Is Hybrid Broker Becoming Famous?

In today’s generation, more than discount or traditional broker hybrid models are becoming much more accessible for people. A lot of modern brokerage companies are providing hybrid model services.

For example, robo-advisors are on trend as they provide investment advice by using algorithms. For people who want a balance between guidance and cost, hybrid brokers are an amazing option for.

Also, Check – IPO Investing Guide

Wrapping Up

The choice between a discount and a traditional broker depends on your personal preferences and investment style. If you want to save money and make your own decision of investment then a discount broker is a great option for you but if you want valuable expert advice and spending a little more isn’t a big deal then say yes to traditional brokers. But before investing, consider a few factors such as fee structure, usability of the platform, and customer services to get a better investment experience.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.