What is a Discount Broker?

What is a Discount Broker?

A discount broker is a stockbroker who carries out buy and sell orders at reduced commission rates compared to a full-service broker. However, a discount broker does not provide investment advice or perform analysis on a client’s behalf, unlike a full-service broker.

Before the emergence of better communications technology, only individuals with a far above average annual income could afford a broker and access to the stock market.

However, the Internet has brought an explosion of discount online brokers that allow individuals with smaller capital to trade for lower fees and with less capital. In terms of the stock market, most discount brokers operate through online platforms. As a result, a discount broker is nearly synonymous with online brokerages.

Pros of Discount Brokers

The primary advantage of working with discount brokers is that they charge discounted commission fees, meaning less expense for the client.

Independent, self-directing investors – especially those that are already working with a financial advisor – benefit the most from discount brokers. Discount brokers are a cost-effective way for a confident investor to get his or her trades executed without spending a lot of extra money with a full-service broker.

Cons of a Discount Broker

The biggest drawback is that using a discount broker is largely a DIY endeavor. If a client is inexperienced and in need of financial guidance, they won’t really find it with a discount broker.

Also, discount brokers aren’t created equal. There are often significant variations in the terms regarding fees and services that are offered. Discount brokers offer different products, account types, and a variation of services. It is important for potential clients to research discount brokers before committing to one.

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Discount Brokers in Other Industries

Discount brokers can also be found in the real estate and other financial services fields. Discount brokers in the real estate industry help individuals buy and sell properties. These discount brokers also have access to the same home listings as full-service real estate agents and help clients to access that directly for a fee, but they do not take the client through the purchase as a traditional realtor would.

Discount brokers may also sell insurance products—although, again, they do not provide professional financial advice. In general, if you know exactly what you need and want, you can probably find a discount broker that will do as you instruct for less money than an advice-oriented broker would charge.