Friday, 1 November 2019

Advantages & Disadvantages of Discount Brokers

Financial industry has seen a tremendous amount of growth in the past decade. Finance and technology are coming together and overcoming all the drawbacks that were present in manual tasks. Everyone in the sector is opt the new change that happened as it was for the benefit of all.

Advantages & Disadvantages of Discount Brokers

Even the role of discount brokers has also changed a lot. Discount brokers perform the function of placing the trade at right time and at right price but they don’t give any suggestions for trade and they don’t do any analysis of the analysis of the portfolio of the client. Discount brokers act as an intermediary of the customers. There are many functions that are performed by discount brokers. These are:

  • Earning brokerage: The discount brokers earn revenue in the form of brokerage and other commissions for providing the services that helped their customers.
  • Competitive trading platform: The trading platform provided by discount brokers is far better than provided by stock brokers. Their platform has many advanced features like technical tools, in built calculator etc.
  • Technically efficient: The technical efficiency means that there is not much of a price gap between the execution price and price at which order was placed. These ratings have a drastic influence on the selection of a particular broker.

Advantages of discount brokers are:

  • Unbiased: The functions and services provided by discount brokers are unbiased. The online website and portal is same for everyone and everyone gets the same features that every other person is getting. So discount brokers are unbiased in providing their services.
  • Educating customers: There are many information that can be gathered from their website or even the magazines of the company or by checking any blogs on the company website. This helps the user in knowing the state of the economy and about the technical efficiency of the discount brokers.
  • Cost reduction: Many brokers don’t charge any commission for equity trades. They have started to offer 0% brokerage. This has reduced the cost of trade overall and increase in profit margin.
  • Low latency: Technical efficiency of discount brokers is far better than the stock brokers due to fast software and low latency. This means the execution price and the price at which the trade was placed is different only by a whisker amount.

There are some disadvantages as well of discount brokers. These are:

  • No guidance: There is no guidance as to how the trades must be placed or in which stocks the money should be invested. There is no management of portfolio done by discount brokers. The investor has to decide on his own and place the trade.
  • Low service: The services provided are not up to the mark as if you have any queries or problem you need to find the number and contact them again and again.
  • Hide & seek fees: Some of them charges 0 brokerage but at the end of the year or quarter they may charge with some hidden fees that was initially not told.

Usually people have the question that which is best discount broker in India? The answer will depend on the services offered by the broker, the commission and on the needs of the customers.

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