There are two sorts of brokerages: discount brokers and full service brokers. Selecting the perfect stockbroker type for your trading needs will help you get the most return on investment. This post will go through Full Service Broker vs Discount Broker, as well as when to use a discount brokerage and when to use a full-service brokerage.
Table of Contents
Full Service Broker vs Discount Broker
Here is the answer of what is the difference between a full-service broker and a discount broker?
| Basis | Full Service Broker | Discount Broker |
| Type | Take a percentage of the trade value in most cases. For high volume traders, provide a cheap brokerage rate. | Take a fixed fee for each executed order, regardless of the value of the transaction. |
| Fee | They charge 0.20 to 0.70% per trade. | They charge INR 10 to 20 per trade. |
| Services | Services including broking, research, wealth management, PMS, and depository facilities are offered. | Services including broking & Mutual funds are offered. |
| Prefect for traders | Traders who want research and investment advice on a regular basis. | Traders with minimal trading demands who wish to save money on brokerage. |
| Offices | With branch offices in different places, the company offers a strong presence in key operational areas. | They don’t offer local presence. |
| Customer care | Email/Call/Branch Servicing/Doorstep Servicing, and other options are available. They provide dedicated RMs mostly. | Email, chat, and phone services are available online. There are no RM services available. |
| Major Brokers | HDFC Sec.,Icici direct & Kotak sec. | Zerodha, Upstox, Grow |
Let’s understand both of them in Detail
What is a discount broker?
Online stock trading has become a reality. As a result, in India, a new breed of broker known as discount brokers has arisen.
Due to their low, fixed brokerage plans, which impose a flat brokerage fee regardless of the trade value, discount brokerage services are becoming increasingly popular among traders.
Zerodha, a discount brokerage firm based in Bengaluru, levies a brokerage fee of Rs 20 per order on stock intraday. The brokerage fee will be the same regardless your trade is worth INR 1,000 or INR 1 Crore.
Working Model of Discount Brokers
Many regular traders are perplexed as to how discount stockbroker firms can offer such low trading costs. It’s because they don’t follow the same business strategy as full-service brokerage firms.
They provide limited services at a lower cost than standard brokers. They only have a small physical presence and offer their services online, which allows them to save money on workers and infrastructure.
Discount brokerage firms provide a variety of services, although the majority of them do not offer research, IPO application, or investment services in Mutual Funds, Bonds, or FDs. They also save money on licences and resources as a result of this.
Pros and Cons of Discount Brokerage firm
| S. no. | Pros | Cons |
| 1 | When compared to full-service brokers, provide lower brokerage fees. | There are no research advice or other investing services available. |
| 2 | All trader types, whether low volume or massive volume, have the same brokerage plan. | There are no branch services available. |
| 3 | Transaction costs are low. | There is no support for RM. |
| 4 | Transparency in trades. | Frauds risk is higher than full services. |
What is a full Service broker?
A full-service broker (also known as a traditional broker) is a licenced broker who offers a variety of services to its clients, such as research advisory, investment services, wealth management, and portfolio management. Full-service brokerage firms, unlike online discount firms, provide services both online and offline.
They have local branch offices, provide dedicated Relationship Managers (RM) to customers, and employ a large number of individuals.
A committed research team at full-service stock brokers performs technical and fundamental analysis and publishes a variety of reports on equities, businesses, and markets.
Why do Full Service brokers charge more?
They charge a greater fee than discount stock brokers since they provide a wider range of services. Furthermore, most brokers provide lower commissions to high-volume traders.
For trade turnover of less than Rs 10 lakhs every calendar quarter, ICICIDirect charges 0.75 percent commission (under the I-Saver Plan).
With a trade turnover of more than Rs 5 crore per calendar quarter, the brokerage percentage lowers, with 0.25 percent brokerage being levied.
Pros and cons of Full Service Broker
| S. no. | Pros | Cons |
| 1 | Both online and offline services are available. | Brokerage fees are more expensive. |
| 2 | Research advisory and other investment options are available. | Traders’ brokerage plans differ, with large volume traders receiving cheaper brokerage. |
| 3 | Multiple sites of branch offices. | The costs of transactions are higher. |
| 4 | Support from a professional RM. | Less Transparency in trades. |
Choosing a broker (Full Service Broker vs Discount Broker)
What is the best way to resolve the Full Service Broker vs Discount Broker conflict? It may appear perplexing, but knowing when to use a discount broker and when to use a traditional broker is essential for the following purposes:
-
Save the brokerage fee
When you don’t require research or other add-on services, you don’t want to pay a higher fee to a full-service broker. You can save the fee which can be considered as your profit.
-
Inexperience trading
If you don’t have the time or expertise to trade stocks, a discount broker’s low brokerage cost won’t assist much because poor trading decisions might result in considerably larger losses. So for this type of people full service brokers are best.
How do you choose?
This question does not have a perfect answer. Nevertheless, you can start with a simple exercise to determine Full Service Broker vs Discount Broker to help you make your decision:
Full-service broker
- Do you require stock and other trade research assistance?
- Do you trade in crores every year as a high-volume trader?
- Do you require trading assistance?
- Do you prefer face-to-face customer service when dealing with problems?
If you answered yes to all of the questions, a full-service broker is the best option for you.
Discount broker
- Do you make your own stock selections?
- Do you know how to use the online services?
- Are you a seasoned trader who doesn’t require much assistance?
- Do you want to reduce the amount of money you spend on brokerage fees?
If you answered yes to all of the questions, then an online discount share broker is the best option for you.
Recent trends in India
India is seeing a substantial growth in the number of traders using inexpensive brokerage services as small cities become more financially developed.
A renowned online payment company just received a licence to provide stock brokerage services. Moreover, some new companies that have recently been founded are gaining appeal among young traders.
Due to market corrections, new traders who prefer discount brokering are taking advantage of this possibility to enter the market. Traditional traders with large funds to invest, on the other hand, choose full-service brokerages.
Conclusion
If you’re still undecided after conducting the above exercise, start by determining your trading needs, then researching the benefits and drawbacks of discount and full-service brokers, comparing services, and making a selection.
This is all from our side regarding Full Service Broker vs Discount Broker. Although, if you have any doubts you can just comment below.
Other Interesting blogs related to Discount Broker vs Full Service Broker.
Frequently Asked Questions About Discount Broker
Which is better discount broker or full service broker?
Although a discount brokerage firm will serve you with all of the trading tools you need for a low charge, a full service brokerage firm will provide you with investment advice for a higher fee. The actual difference between a discount broker and a full-service broker is therefore your requirements.
What is one main disadvantage of using a full service broker?
The primary disadvantage of choosing a full-service broker is the associated costs. Full-service brokers' commission structures are often greater than discount brokers', and there may be a variety of other expenses as well.
How safe are discount brokers?
Stock brokerage accounts with no amenities are available from discount brokers. They merely supply the bare minimum in terms of trading facilities. The money of investors is also safe with them, due to the fact that brokerage is a highly regulated industry. Full-service brokers charge a substantially higher price than discount brokers.
Are full service brokers worth it?
If you don't have any financial knowledge or just want someone to hold your hand, a full-service broker may be worth the money. The ability to work with a professional who can help you through the process is perhaps the most significant advantage of a full-service organisation.
Is Zerodha full service broker?
They're a discount brokerage firm, not a full service broker. Whether you buy 1 lot or 100 lots, they charge the same fixed brokerage fee. For instance, if you buy 1 lot or 100 lots of nifty, Zerodha will charge you a fixed Rs. 20, but a full-service broker will charge you based on the volume you trade.
