Investing in the stock market is the modern-day investment mantra for faster returns than the old-school methods. However, it is risky and requires you to follow certain criteria. One of them is to trade through stockbrokers. As per SEBI, all trades on stock exchanges should be routed through a brokerage house that is a member of the Exchange.
Stockbrokers are individuals or firms that act as an intermediary between you and the stock market, be it for Demat account opening, buying or selling of securities, or to help you understand what and how to trade. Broadly speaking, there are two types of stockbrokers, namely a traditional broker and a discount broker in India.
Who is a Traditional Broker?
A traditional broker is a stockbroker that provides you with a plethora of services to enhance your trading experience. For this reason, they are also known as “full-service brokers.”
Some of the popular and commonly-opted services offered by traditional brokers include placing trading bids, asset management, research on financial instruments, financial advisory, and retirement planning.
They also scan the stock market according to your investment goal, budget, and risk appetite to suggest trades, which can help you appreciate your portfolio. The traditional brokers deliver detailed research reports on stocks and the market, apart from recommending investment and diversification ideas and tax-saving guides.
However, since they offer a wide array of services, they charge a relatively higher brokerage commission than discount brokers.
Who is a Discount Broker?
A discount broker in India is an individual or a brokerage firm that offers only the essential trading service of placing your trading bids. They do not offer any trading advice, research, or asset management services.
Since they only have limited services, they charge a discount commission, which is highly economical in the long run.
Moreover, to remain competitive in the market, they rely heavily on the use of advanced technologies to provide you with robust technical tools such as charts and other software to help you identify profitable trades.
Discount brokers too offer reports, charts and analysis of your stocks using powerful analysis tools.
Difference Between Traditional Brokers and Discount Brokers
The following are the key differentiators between traditional brokers and discount brokers:
| Basis | Traditional Brokers | Discount Brokers |
| Brokerage | Charge relatively high compared to the discount brokers | Charge minimal, next-to-zero for carrying out the basic trading functions |
| Type of Services | Offer multiple services including placement of trades, research, advisory, asset management, etc | Offer to place buy and sell trading bids in the market on your behalf |
| Presence | Maintain an online and offline presence through physical office branches | Have a digital presence via their website and stock market trading app |
| Relationship Manager (RM) Support | Offer RM services to their clients for assistance | No RM support offered |
Wrapping Up
As per the rules laid down by the Securities and Exchange Board of India (SEBI), you can trade in the stock market only via an entity which is a member of the stock exchange and that member is a stockbroker. You can choose between a traditional and a discount broker based on your requirements of services and commission preference.
