Stocks can be purchased either through a stockbroker or buying directly from the company. When you buy stocks from the market, it’s always either through discount brokers or full service brokers.
Stockbrokers are working like an agent between the market and the market participants to buy and sell shares.
In India, these agents are registered members of stock exchanges regulated by SEBI.
Process of buying stock through a stockbroker is always same irrespective of the agent you choose;
- You need to set-up an account
- Place an order with a stockbroker
- Pay for the purchases.
Problem comes when you pay different charges for buying and selling stocks to the stockbroker. Therefore choosing your stockbroker for the benefits you get is one of the key decisions you should make before getting into the stock market.
Stockbrokers are two types;
- Full service brokers
- Discount brokers
Full Service Brokers
As the name suggests, full service brokers are those, who offers full brokerage service including followings;
- Provide advisory services for shares, mutual funds, bonds, currencies, commodities along with other ancillary services.
- Provides online stock trading and call-trade facilities.
- Provides fundamental and technical research reports on stocks, mutual funds and on markets.
- Operates out of many local offices across the country which clients can visit in case of any query.
- Offer client dedicated relationship managers, portfolio management service, retirement planning, tax tips and services related to wealth management.
Here are few examples of full service brokers in India;
- ICICI Direct
- HDFC securities
- Kotak Securities
- Motilal Oswal
- Angel broking
- Axis direct
- Aditya Birla Money
Full service brokers are suitable for those investors who need some guidance. These people try to provide all most all possible services for those market participants who open accounts with them.
Discount brokers carry out buy and sell orders at a reduced commission rate. These stockbrokers only take orders online through a trading platform.
They don’t provide any advisory or additional services such as personal consultation, advice, research and tax planning. You will not get a local office representative to work with you.
Example of discount brokers;
One of the best parts of discount brokers is that they charge very less fee towards each trade compared to full service stockbrokers. Some of them charge Rs 10 per trade or Rs 20 per trade irrespective of the amount invested.
Due to internet penetration, discount brokers in India are a recent trend. These people make money when they have a huge volume of transactions.
Another reason would be that many market participants opened up their account with full service stockbrokers but they don’t use their additional services and do not even visit their branches. Therefore, they are moving to discount brokers which is less costly compared to the amount they are paying for getting nothing.
Discount brokers are good for those who are well versed with the market, sufficiently confident, knowledgeable and can do their own research before investing or trading with minimal or no help.
Choosing between these two types of stockbrokers is purely a personal choice.
When discount brokers can be beneficial
Here are three situations when discount brokers can benefit you;
- When you don’t have lots of money to invest and don’t want to pay large amounts towards fees and commissions.
- You prefer to do your own research instead of reading to various fundamental or technical call reports.
- You are very good at learning and do not want anyone’s help to get started.
If you are a beginner in the stock market and can’t execute a trade without help, then a full service broker can be beneficial.