What Is A Discount Brokerage?
A brokerage is a business, firm, company, or organization whose business acts as a broker. A discount brokerage is a stockbroker whose job is to transact orders at significantly lowered commissions and rates relative to full-service brokers.
They do not offer investment advice, consultation services, or perform analyses for a client as a full-option broker would. Thus, with the explosion of the internet and the fintech industry, some services are withheld from the clients, increased patronage of discount brokerages where individuals with less starting capital can trade for fewer fees.
They operate majorly on online platforms. As such, they are thought of along the same lines, providing access for more people to expert brokerage services. This is unlike before the advent of information technology.
The scope of a discount broker’s service is the receipt and execution of the orders of clients.
Services like personal consultations, advice, tax structuring, estate management, background checks are not covered in their customers’ transactions.
These factors, as well as not having to close deals with mega-rich individuals, mean that lower fees are charged for their services.
Also worthy of note is the relative absence of running costs in floating the brokerages as they are mainly online.
The securities industry is run such that there is minimal contact of live brokers with the customers. Each one has accounts where orders are entered for execution to be carried out promptly.
Electronic trading platforms are usually helpful and targeted at active traders and investors who can monitor charts and positions individually.
As of the beginning of 2019, several discount brokers scrapped commissions on particular securities altogether.
Factors that determine an investor’s choice for either a full service or discount broker include their knowledge on investment, trading experience, financial goals, and current financial standing, among others.
To avoid losing a sizeable chunk of trading profits on commissions, some investors decide to take the option of working with discount brokers’ products. Those who constantly sell and buy securities or have small portfolios are better served by the discount brokers.
Discount Brokerage Example
In the real estate sector, discount brokerages function by providing the same home listings to individuals through their brokers but do not provide full-spectrum services a traditional real estate agent would, either in purchase or sale.
E-Trade is an example of an online discount brokerage. They offer a range a mixed range of investment choices, including stocks and options trading.« Back to Glossary Index