Brokerage firms are financial institutions that help you buy and sell securities. They act as an intermediary between the buyer and the seller. Depending on the brokerage firm that an investor or trader chooses, orders could be placed through telephone, internet, or smartphone. Here trades mean buying and selling shares, derivatives instruments, mutual funds, IPO, etc.
Brokerage firms may charge per buy, sell, or lot per order basis. When an order is placed through the call and trade facility of a broker, then it could be more expensive than per order or per lot per order basis. An order placed through call and trade is an assisted order system where an executive of the brokerage firm places demands per the directions of an investor or trader.
Full-Service Brokerage Firm
A full-service brokerage firm provides various financial services, including brokerage, customer service, research, advisory, and other related services. Additional services may include wealth management, portfolio management, financial planning, etc.
Amount of brokerage charged by brokerage firms like order placement and research or order placement, advisory and research, and similarly other combinations of services.
Usually, a brokerage firm that offers a suite of financial services like brokerage and other financial products may charge the highest brokerage. Sometimes, legacy and non-tech-based brokerage firms may also charge high brokerage as their cost of operations could be higher than tech-based new age firms.
Often, customers with less time may prefer full-service brokerage firms as they would be interested in subscribing to services like research, advisory, and other assisted trading and would be willing to pay more and higher brokerage. Retail investors and traders might be helpful to subscribe few and not all services offered by a brokerage firm.
Discount Brokerage Firm
A discount brokerage traditionally doesn’t provide additional financial services like advisory, research, wealth management, and other services. However, few discount brokerage firms may provide further services like brokerage, etc., on a chargeable basis. These charges could be on a subscription model or per service basis.
Few services like call and trade that offers customers the facility to place an order through customer service may charge either at par with full-service brokerage firms or higher charges.
Recent development in technology has enabled discount brokerage firms to offer services through mobile applications that are user-friendly and facilitate trading.
Online Brokerage Firm
An online brokerage provides its services through the internet. There are two types of online brokerage firms. Some don’t have any physical presence, and some operate under a full-service or discount model. This brokerage service is usually the cheapest where the brokerage service and other financial services are offered online on a self-service model or Do-It-Yourself (DIY).
A customer can buy and sell orders over the internet anywhere and anytime. Online is a medium of service and has changed how stock trading is done at exchanges. In addition to stock trading, online broking firms may offer services like financial planning, wealth management, research, etc., to get more customers.
Brokerage charged by online brokerage firms could be the cheapest in the market and depends on the type of services offered along with stock trading, e.g., if t, if they provide the facility to invest in mutual funds, ETFs, and portfolio management, then they may charge higher.
Conclusion: Selection of a Brokerage Firm
So, which of these three types of brokerage firms will an investor choose?
Investors and traders will choose a brokerage firm depending on their level of comfort, expectation, and service that they expect. Let’s consider three different scenarios.
A young individual interested only in investing in mutual funds or direct equity may prefer a discount brokerage that offers online stock broking and supporting services.
A middle-aged professional without experience may prefer a full-service brokerage firm that offers more than just stock broking. This middle-aged professional would be engaging in research and advisory services along with buying and selling order placement. Similarly, a busy professional during the daytime may prefer a stock broking firm that offers call and trade services and portfolio management services.
A seasoned professional with experience in trading may choose either discount brokering or an online full-service broking firm. This professional may need just a platform to execute the trade and understand other aspects like stock selection, asset classes, etc.
So it could be said that one shop will not fit all. With changing demographic distribution and profile selection of stock, the broking firm would depend on various factors like; age, location, experience, tech savviness, etc.
When selecting a stock broking firm, it is advised to take feedback from other investors and traders, check online reviews, and the website of the capital market regulator, like SEBI.
