Investing in the equity market can be lucrative if you know the correct techniques. However, you must go through a stock broker to buy and sell shares and bonds. There are two basic types of brokers. A full-service broker offers a whole range of supplementary services in addition to the basic function of share trading, but a discount broker offers only cut-rate brokerage services for buying and selling equities. There has been a boom in discount brokers in recent years due to their many advantages. A quick look at the main benefits and disadvantages of discount brokers:
Top Benefits of Discount Brokers
The top advantage of using a discount broker to trade equities is the low transaction cost. The commissions charged by discount brokers are low and can be even nil for some categories of trades. Typically, they charge a flat fee, not a commission based on your trading volumes. The low cost is attractive to small retail investors as it helps them boost their returns.
When operating through a discount stock brokerage company in India, an investor gets an online trading terminal that enables him to trade as and when he likes without any assistance or intervention by the broker. Most brokers offer the trading terminal free of cost. The trading terminal offers complete transparency of trading and costs. You have instant access to all the calculations regarding brokerage, margins, and other charges and instant confirmation of trades. The account opening is simple, paperless, and requires minimum documentation.
Top Cons of Discount Brokers
The biggest drawback of a discount broker is it operates in a centralized manner, so if you face any problems, you cannot approach any branch office but instead have to rely on the helpline. You do not get the benefits of having a dedicated relationship manager, unlike a full-service broker. It means you have to transact and manage your portfolio by yourself. Most discount brokers limit themselves to equities and mutual funds; therefore, you cannot buy or sell other investment options. Discount brokers do not offer research, advisory services, or portfolio management services, which means they are ideally suited for experienced investors.
Conclusion
When selecting an online discount broker, you need to check out how user-friendly their trading terminal software is. You should check out the schedule of their charges and compare costs across various discount brokers. Be sure to check for hidden charges. It is a good policy to check out user reviews online and find out more about their reliability levels and customer service.