Discount Brokers Vs Full-Service Brokers
Last Updated: Jan - 14- 2020
Broker is someone who assists the investor in buying or selling stocks in the market. They are registered agents who are regulated by the Securities and Exchange Board of India (SEBI). Stockbrokers are of two types – Discount brokers and Full-Service brokers. In this blog we will try to know more about these brokers, the services that they offer, and their pros and cons, allowing you to choose the best one for your trading needs.
To have a good trading experience, you must find the best broker who can fulfill your trading requirements. However, before you start looking out for a broker; let us know more about the two major types of brokers.
• Discount Brokers
Discount brokers are famous for their unique selling point (USP), which is charging a fixed brokerage fee irrespective of the trade value. For instance, Zerodha, a broking company based in Bengaluru, charges a brokerage fee of only Rs 20 per order on equity intraday. Which means, if your trade value is Rs 10,000 or Rs 10,00,000, the brokerage fee will not alter. This is of a great benefit to the investors as it is cost-saving plan of trading.
Discount brokers provide limited services at a cheap rate. They have a very limited physical presence, which helps them work at low costs. This is favored by experienced traders who wish to spend money on trading rather than paying high brokerage fee.
Take a look at some of the leading Discount Brokerage firms and their brokerage charges, account opening charges, and annual maintenance charges.
|A/C Opening Charges||Rs.300||Rs.150||Nil||Rs.650||Nil|
|Demat AMC Charges||Rs.300||Rs.150||Rs.400||Rs.400||Rs.400|
|Equity Delivery||Nil||Nil||0.2% or Rs.20 per Executed Order||Rs.10 per Executed Order||Nil|
|Equity Intraday||0.01% or Rs.20 per Executed Order||0.01% or Rs.20 per Executed Order||0.02% or Rs.20 per Executed Order||Rs.10 per Executed Order||0.01% or Rs.20 per Executed Order|
|Equity & Currency Futures||0.01% or Rs.20 per Executed Order||0.01% or Rs.20 per Executed Order||0.02% or Rs.20 per Executed Order||Rs.10 per Executed Order||0.01% or Rs.20 per Executed Order|
|Equity & Currency Options||Rs.20 per Executed Order||Rs.20 per Executed Order||Rs.20 per Executed Order||Rs.10 per Executed Order||0.01% or Rs.20 per Executed Order|
|Commodities||0.01% or Rs.20 per Executed Order||0.01% or Rs.20 per Executed Order||0.02% or Rs.20 per Executed Order||Rs.10 per Executed Order||0.01% or Rs.20 per Executed Order|
Advantages of Discount brokers:
- They offer online services that one can access from any place at any time.
- As mentioned earlier, they offer low brokerage charges as compared to full-service brokers
- Offer a variety of brokerage plans – monthly brokerage plan, per trade plan, each segment plan. You can select a plan that best suits your trading needs
- The brokerage plans are fixed irrespective of the types of trading (low volume or high volume)
- Low transaction costs
- Useful for intraday traders
Although discount brokers may seem to have numerous benefits, there are some disadvantages that you must consider before opting for a discount broker.
Disadvantages of Discount brokers:
- They do not provide any research tips, recommendations or investment advice
- They do not offer any additional investment services
- They do not have any branch services
- They do not have any relationship manager support. You may have to call on customer care number for any query
- They do not provide any updates about stock market prices, news, IPOs, mutual funds, etc.
- They do not offer call and trade facility. Investor cannot visit the branch or offer for trading
• Full-Service Broker
A full-service broker is a licensed broker who offers all types of trading and investment services to its customers, such as research advisory, wealth management, retirement planning and portfolio management services. They are also known as traditional brokers. They provide advisory and trading facility in stocks, commodities and currency.
Unlike the discount brokers, they offer both online and offline trading facilities. To enable this, famous full-service brokers have created a PAN India presence, having multiple offices and local sub-brokers for assistance in various cities across the country. In addition, they provide dedicated relationship manager to each of their clients who are always available to provide any assistance required.
Full-service brokers generally have to employ a lot of people as they have their own dedicated research team. This team conducts thorough technical as well as fundamental analysis of the market and publishes various reports on stocks and companies. They also keep the clients updated with the latest trends of the share market.
As they offer numerous services benefiting the investor, they charge more brokerage than the discount brokers. In addition, most of the brokers charge less brokerage for high trade volume.
For example, ICICI Direct charges 0.75% brokerage for trade turnover of less than Rs 10 lakhs per calendar quarter. This is known as their I-Saver Plan. In this plan, the brokerage percentage decreases with a rise in trade turnover with 0.25% brokerage charged for trade volume of above Rs. 5 Crore per calendar quarter.
Take a look at some of the leading Traditional Brokerage firms that let customers invest and trade in stocks, futures, options, currencies, and bonds in the Indian Stock Market.
|A/C Opening Charges||Rs.975||Rs.999||Rs.750||Rs.900||Rs.600|
|Demat AMC Charges||Rs.450||Rs.750||Rs.400||Rs.500||Rs.300|
|Equity Delivery||0.25% - 0.5%||0.3% - 0.5%||0.2% - 0.4%||0.25% - 0.5%||0.1% - 0.3%|
|Equity Intraday||0.025% - 0.05%||0.03% - 0.05%||0.02% - 0.04%||0.025% - 0.05%||0.01% - 0.03%|
|Equity & Currency Futures||0.03% - 0.05%||0.03% - 0.05%||0.02% - 0.04%||0.025% - 0.05%||0.01% - 0.03%|
|Equity & Currency Options||Rs.65-Rs.90 per lot||Rs.50 - Rs 100 lot||Rs.20-Rs.50 per lot||Rs.50 - Rs.100 per lot||Rs.20 - Rs.50 per lot|
|Commodities||NA||NA||0.02% - 0.04%||NA||0.01% - 0.03%|
Advantages of Discount brokers:
- They offer both online and offline trading services
- They offer research advisory and other investment services
- They have branch offices in multiple cities across India
- They provide a dedicated Relationship Manager for assistance
- They provide numerous services apart from trading
- Best for delivery based trading
- Client can opt for call and trade facility. Client can visit the branch or office for trading
Similar to discount brokers, full-service brokers also have some disadvantages which investors might have to face.
Disadvantages of Discount brokers:
- They charge high brokerage fees
- Brokerage plans vary for traders with high volume traders enjoying lower brokerage
- Transaction costs are higher
- Non-affordable for intraday traders
We have seen the positives and negatives of discount brokers and full-service brokers. It is important that you understand all of these details and figure out what works best for your trading requirements. Now the question that arises is when to choose a discount broker or a full-service broker for oneself.
One must realize that it makes no sense in paying high amount of brokerage fee to a broker if you are just willing to trade and not interested in any other investment services. Also, it is not a suitable advice to opt for low brokerage fee trading, just because you do not have enough time and knowledge about the market as it may lead to loss.
In conclusion, let us summarize all the points:
|Discount Broker||Full-Service Broker|
|Brokerage||Charge a flat fee on each executed order irrespective of the trade value||Generally, charge a percentage of the trade value. Consider low brokerage fee for high volume trades|
|Brokerage charges||Rs 10 – Rs 20 per order||0.25% to 0.75%|
|Services||Very rarely, may have broking services with few brokers offering Mutual Funds services||Broking services, research, wealth management, retirement planning, depository services and more|
|Suitable for||Traders who prefer online trading||Frequent traders who need advice and assistance related to all kinds of trading and investment services|
|Physical Presence||Strong PAN India presence of most of the brokers|
|Customer Service||Online services, email, chat||Has RM assistance, branch servicing, email, chat, doorstep servicing, and more|
|Examples||Zerodha, Upstox, Trade Smart Online, SAS Online, Tradejini and more…||ICICI Direct, Kotak Securities, Sharekhan, HDFC Securities, Axis Direct, Edelweiss, and more…|