Raghunandan Money – Investment Khushiyon Ka.

What is discount brokerage – a sneak peek

Published : August 31, 2017

What is discount brokerage?

Discount brokers in India – Who are they?

Discount brokerage is a new breed offered by brokers in the stock market in India. We all know that the trend in usage of internet is rising in India. This has resulted in more online investment activities. In order to cater this new trend in the stock market, discount brokers came in the picture. They generally offer competitive brokerage and effective customer services.

Discount booking started very recently in 2010. Unlike traditional full-service brokers, discount brokers are very few in number. They keep their charges quite low when compared to full-service brokers. Normally they do not charge an annual service fee on customer’s account.

They are operating successfully even though with low charges. This is because they run their business with few employees, fewer products, and no advisory services. Lately, the discount brokerage is gaining much popularity in India. Rising population on net and failure of traditional brokers to fulfill the need of the hour are the major reason.

Benefits of discount brokerages

The following benefits an investor or trader receives while working on discount brokerage –

1. Pay less and earn more

Discount brokers provide cheaper access to investments. This contributes to greater profits and improved decisions. Generally, the investor/trader save money on each transaction when compared with full-service brokers.

Traditionally investors have to pay the large amount as commission to brokers. Commissions were either flat fee or were based on the volume each transaction.

Further, a frequent trade pays a large chunk of their profit as commissions. But by working on discount brokerage, both investor and trader save large amounts of money. This results in increased profits.

2. Safer than trading with traditional broker

The second benefit of working with a discount brokerage firm relates to safety. Normally, if a broker reduces commissions, then usually do it for bulk trade. Small and local brokers commonly do not follow this.

On the other hand, most discount brokers have the large operation and are large companies. This means that the investment and trade are in safer hands than the small brokerage company that is relatively unknown.

3. Straight forward services

Discount brokers operate straight forward. They provide the trading platform to customers to make their own trades. Also, they don’t offer advice and guidance on any trade.

Such brokers offer quality and efficient services which facilitate customers to buy and sell investments/trade easily.

Drawback of discount brokerages

Definitely, using discount broker restricts the benefits of a full-service broker. One loses out the advice part when using a discount brokerage. But since most of the online discount brokers provide the variety of trading and researching tools. This will overcome the advice limitation. However, for this need to understand the working of such tools.

Further, the discount broker does not provide services in different types of securities. Mostly they focus on popular securities. This restricts options and seriously affect profits in the long run.

How to choose a discount broker in India 

Choosing a discount broker very much depends on need and type of trade one is planning. Before picking broker, it must b kept in mind that whether you are coming to the market for frequent trading or for occasional investment. More precisely the following points must be considered before such choice:

1. Brokerage – Discount brokers mostly offers price-per-trade. So choose a discount broker that offers lowest price-per-trade.

2. Other fees and charges – All brokers charge other fees like fees for closing an account, transferring assets into the account, annual fees, account inactivity fees, IRA custodian fees, wire transfer fees and charges for not maintaining a minimum required balance, etc. So look for a discount broker who levies less of such charges. Also look for your preference as well with additional other fees and charges.

3. Customer service – Customer care service is another important aspect which is must in case of discount brokers. As they are mostly online, away from one’s location hence every issue is resolved through phone or emails. So must check for the kind of services these brokers provide before finalizing.

4. Product selection option – Beside stocks look for other investment instruments on offer by the discount brokers like government bonds, options, corporate bonds, and etc.

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