Hello Investors. Today we are going to discuss one of the hottest topic in the investing world- Full-service broker vs discount broker and which one to choose? However, before moving forward, let us first understand who is a stockbroker.
Who is a stockbroker?
A stockbroker is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.
Now, there are two types of stock brokers in India:
- Full-service brokers (Traditional Broker)
- Discount brokers (Budget brokers)
Let us understand each type of stockbrokers:
Full-Service Brokers (Traditional Brokers)
They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute as a percentage of each trade executed. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.
Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal etc.
Discount Brokers (Budget Brokers)
Discount brokers just provide the trading facility for their clients. They do not offer advisory and suits for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities and currency derivatives. A few examples of discount brokers are Zerodha, ProStocks, RKSV, Trade Smart Online, Achiievers, SAS online etc.
Full service brokers vs discount brokers:
Here are the key differences between full service brokers vs discount brokers based on different criteria:
| FULL SERVICE BROKERS | DISCOUNT BROKERS | |
|---|---|---|
| Brokerage | They charge commission in percentage terms of each trade executed. | They offer a flat fee on each trade executed. |
| Brokerage rates | Typically between 0.3 to 0.7% | Generally Rs 20 per trade. |
| Primary Service | They provide trading platform along with advisory for investment. | They only provide a trading platform (no investment advisory provided). |
| Suitable for | Full service brokers suit those who want advisory for their investment. | The discount broker is suitable for those who research on their own or have a financial advisor. |
| Research Department | They have their own research departments for advisory. | No such department. |
| Network | They have a large number of branches in different cities. | They do not have many branches. |
| Customer service | Face to face customer service available. | Online services for customers. |
| Other Facilities | Besides stocks, commodities & currencies, other facilities offered are forex, mutual funds, IPOs, FDs, bonds, insurance, etc | Only stock, commodities & current trading available |
| Add on services | Research reports, recommendations, funding, extended margin etc | Focuses mainly on trading |
| 3-in-1 Account (Saving+demat +trading) | Available | Not available |
| Examples/ Top Brokers | ICICI Direct, HDFC sec, Kotak securities, Sharekhan, Motilal Oswal, Angel Broking, Axis direct, Edelweiss, Aditya Birla money etc | Zerodha, Prostocks, RKSV, Trade smart online, Tradejini, SAS online etc. |
Also read: Where to open your Demat & Trading account?
Which one should you choose?
The answer depends on your knowledge, preference and time. If you want stock advisory for your investment, then you should choose a full-time broker. On the other hand, if you want to do research on your own or you have a financial advisor, then you should choose a discount broker.
Further, you should also consider brokerage charges carefully before selecting your stockbroker.
I will highly recommend you to choose a discount broker (like Zerodha) as it will save you a lot of brokerage amount.
Initially, I started with ICICI direct (which is a full-service broker), but soon realized that it was too expensive compared to the discount brokers. Moreover, I wasn’t using the advisory facility by the ICICI direct. Hence, it didn’t make sense to pay extra brokerage charges even if I can get similar benefits on the cheaper stockbrokers.
I then shifted from ICICI direct to Zerodha.
Zerodha (discount broker) charges brokerage of 0.01% or Rs 20 (whichever is lower) per executed order. This is way cheaper compared than ICICI direct (full-service broker) which asked a brokerage of 0.5% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 250 (on the other hand, Zerodha will ask only Rs 20, a difference of Rs 230).
Also read: Different Charges on Share Trading Explained- Brokerage, STT & More
In addition, as this amount is charged on both sides of the transaction (buying & selling), hence you have to pay a total of Rs 500 for the complete transactions (way too expensive compared to a total brokerage of Rs 40 on both sides of transactions in Zerodha).
In short, if you are new to investing and want to open a trading account, I would recommend choosing discount brokers, so that you can save lots of brokerages.
Related Post: How to Open a Demat and Trading Account at Zerodha?
However, in the end, it’s your knowledge, preference and time that matters the most while selecting a stockbroker. If you have enough knowledge and time for your stock research and prefer not to pay an extra commission, then you should go for a discount broker. On the contrary, if you do not mind paying extra commission for the advisory services to save your time, you can select a full-service broker.
If you are new to stock market and want to learn the basics from scratch, here is the best selling book that I highly recommend you to read: How to Avoid Loss and Earn Consistently in the Stock Market by Prasenjit Paul
That’s all for this post. I hope you have understood the difference between full service brokers vs discount brokers. Further, if you have any doubts, do comment below. I will be happy to help you out. Happy Investing.
Kritesh (Tweet here) is the Founder & CEO of Trade Brains & FinGrad. He is an NSE Certified Equity Fundamental Analyst with +7 Years of Experience in Share Market Investing. Kritesh frequently writes about Share Market Investing and IPOs and publishes his personal insights on the market.
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Hi,
thanks for your valuable time………can you explain about intraday trading
how its working…what caution we have to take…is it good for beginner???
Thanks for the wonderful post
You are welcome Ciara.
Sir does discount brokers offer IPOs,MUTUAL FUNDs,forex
It depends on the broker. The most discount broker offers investment in mutual funds. However, IPO and forex trading facility are not available in many. I hope it helps. Cheers!!
Hi,
First thanks for such nice article and all information. Q- Can we buy IPO vai discount broker ?
No. Generally, the discount brokers do not provide add-on services like IPO trading. However, there are also other ways to invest in IPO once you have a DP ID like investing through your bank account through ASBA (Account Supported By Blocked Amount). Nevertheless, full-service brokers provide a simple platform to invest directly in IPOs. I hope it helps.
is 5paisa.com a safe discount broker to trade with ? Is there any fraud case anyone heard on this company where customer money was manipulated ?
5 paisa ( as enlisted in NSE,BSE) is having SEBI Registration Number : INZ000010231 but still i wished to consult the forum if anyone has got any fraud experience so far by them
How do full service brokers provide advisory facilities to investors ?
Hello Sir,
Have you ever consider the slippages ? I personally feel that there are bigger slippages in discount broker than full service brokers. So Even if you save some brokerages in discount brokers, you end up paying more in slippages. Needless to say that there are many technical faults during trading hours in discount brokers. That costs money too. I am personally looking for good service with cheap brokerages. I just found out that axis direct offers Rs 20 flat brokerage plan. Do you have any experience with Axis Direct?
Sir, I am a beginer, I have one confusion . Can I choose one full service broker & a discount broker at a time? Can one tranfer his broker agency (full service broker to dicount broker at any time )? What’s the rule?
Friends don’t waste your time and hard earned money through Prostocks like discount Broker worst platform even customer care services are handled by unskilled workers.
Choosing a broker for trading is a very typical task because there are a lot of scammers in the market. Also, the numbers of brokers in the market are well regulated and safe.