Stock trading is not as simple as it seems. People often look for a complete hand-holding right from opening a trading account to deciding over the right investment. A broker is a professional who simplifies trading for you acting as an agent between the market and you. However, before starting, you must verify that the broker you are going to work with is a registered member of exchanges regulated by the Securities and Exchange Board of India (SEBI). This article tends to answer all your questions regarding which broker you should opt for your trading needs.
On a general note, brokers are categorized into two segments:
Through this blog, you will develop an understanding of both these types of brokers with major differences among them. With this knowledge, you will be able to make the right choice of a broker for stock trading. Let’s dig deep into finding which type of broker is better, more reliable, or we can say, proves out to be more beneficial.
Since the turn of the century, trading has gone online causing the traditional brokers to adapt to this new trend. However, this has also led to the rise of discount brokers who generally offer their services at a discount compared to the traditional full-service brokers.
These brokers follow a different business model as they charge a fixed fee on each trade allowing the customer to trade at a discount. Firms like Zerodha are a prime example of a discount broker. Here is a list of best discount brokers in India.
This is only possible as they provide only a limited number of services online and have a very limited physical presence which helps them save the cost of employees and infrastructure.
A full-service broker is a licensed broker who offers various services like advisory, research, trading platforms, wealth management services, etc. to their clients both offline and online. They also have assigned relationship managers who tend to their client’s needs and in return charge a high amount of brokerage for their services.
Apart from stock trading, all the brokers might also deal in commodities, tax planning, mutual funds, and currencies. Both types offer the same trading service but are quite different in terms of the brokerage fee, technology, research, customer service provided, and operation method. Here is a list of the best full-service brokers in India.
- Kotak Securities
- Motilal Oswal
- ICICI Direct
- Karvy Stock Broking
- Angel Broking
- Edelweiss Broking
- Axis Direct
Wondering how? Read ahead.
Difference between Full Service and Discount Brokers
Below are some of the key points that will help you discover the differences between a full-service broker and a discount broker.
This is one of the most important and key areas you should consider before making the decision. As stated above, a full-service broker charges a fixed percentage of trade executed done by you through them. Higher the trading volume, higher will be the brokerage you will need to pay.
People who aren’t able to afford full-service brokerage usually opt for a discount broker. However, choosing a full-service broker has its benefits as such a professional offers a range of services including tax planning and commodities among others at one place only.
Conclusion: Brokerage will cost more if you opt for a full-service broker as compared to discount but you will also get a varied range of services. However, most of the investors having large budgets prefer paying a lower fee and hence, prefer discount brokers.
You must review the platform used by the broker before making a choice. Thus, start with discovering the type of platform/technology the broker is using and its benefits as well as restrictions. Is the platform used by the broker stable? You may be surprised to know that many of the platforms do not offer real-time updates on stock pricing which is very crucial in this domain.
Conclusion: Better and more advanced the technology/platform used by the broker, better will be services that he can offer. Most discount brokers are known to offer good quality trading platforms as their chief mode of operation is through online trading. Some of the full-service brokers are also known to provide high-quality trading platforms.
Research & Advisory
Proper research is very important if you are planning to start with stock trading. The decision is entirely yours whether you are willing to manage finances and investments on your own or get assisted by a professional broker. Though a professional is recommended if you are a beginner, you must go through some recent research from the brokers you have shortlisted. You can get access to this research from stockbrokers on a real-time basis by clicking this link.
Conclusion: In this context, a discount broker generally does not provide any research and advisory. Besides, a full-service broker performs the required analysis, based upon which they share advisory to their clients. This service is beneficial for new and existing traders alike as it can help them to be profitable.
Full-service Broker has a wider presence and often operates from multiple branches whereas a discount broker is usually restricted to an online platform only.
Conclusion: Though being said being online makes them easily accessible from any place of the world, having a land-based office adds a sense of credibility that is something beginners prefer.
Trading & Other Costs
Before finalizing a broker, you must understand and review the complete cost structure for operating a specific account. You may find brokers quoting you less on brokerage fee but adding more on other charges later on. Thus, it is vital to have a thorough study and include any & all hidden charges applicable to evaluate your net return on investment, if made with a particular broker.
Conclusion: There cannot be any particular choice as this will vary from broker to broker and applies to both categories.
Call & Trade
Few brokers do provide you with the facility of call & trade where you get a client relationship manager assigned to keep you up to date on the progress in the stock market as well as your ongoing investments. Besides, the assigned person can also trade on your behalf with your consent. This service is quite effective and is quite useful for people who can’t invest much time and efforts due to a busy schedule.
How to make the choice between full-service or discount brokers
In the end, both types of brokers can help you achieve your goals but it’s important to select the choice that will match up best with your needs. If you find yourself in the following categories, then you might want to give discount brokers a try:
- You make your own decisions and don’t require a salesperson to tell you where to invest in.
- You don’t have a lot of money to invest in the market and can’t afford to spend a lot of money on fees and commissions.
- You prefer using an online interface to trade in the market.
- You’re good at learning how to use tools and resources to get the insight you need to make smart decisions with your money.
- You have other financial professionals supporting you and don’t need a broker that will potentially disagree or contradict what your current advisors have said.
In contrast, if the below characteristics suit you better, a full-service broker is worth investing with:
- You are not aware of which stocks to invest in the market.
- Your brokerage relationship is just one small part of your overall business with the full-service financial institution in question, which may also include various areas like private banking, wealth management, or commercial relationships for business owners.
- You can afford to pay the high amount of fees for more customized services being provided by the full-service brokers.
For most people it is financially viable to go with a discount broker as they offer very brokerage for their services and given how expensive full-service brokers are, it is often advisable to learn what you need in order to get the most out of your broker. Not only will you save costs it will also make you a better investor in the future.
In addition to the elements discussed above, here are a few points that you should analyze and evaluate in addition to the choice of broker to make a wise decision
- Identify your need for opening a trading account
- What type of account are you looking forward to the opening?
- What type of trade are you interested in?
- How much profit margin are you targeting? Do keep in mind that this margin will vary from broker to broker, irrespective of whether it’s a full service or a discount one.
- How many brokerages are you planning to pay? What is your budget?
This, combined with an understanding of the difference between the two types of brokers forms a solid base for making the right choice for your trading needs.