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Pros And Cons of Using Discount Brokers

5 min read
Discount Brokers

It is not just the customers who shop during the sale that are looking for discounts. People looking to invest in the share market with capital are also looking to invest in stocks with low prices. Thanks to the discount brokers that are firms providing shares to investors in a considerably low commission on transactions but with no additional service like investment advice for them.

Compared to a decade ago, more and more individual investors are flocking towards discount brokers. But is it all right to open a Demat account online with discount brokers?

Let’s take a look at the Pros and Cons of using discount brokers.

Pros Of Using Discount Brokers

Low Commissions: The primary benefit of using discount brokers is that they charge low commissions on transactions of your shares.

No Service Biases: Since discount brokers do not offer any advice, they do not push customers to buy or sell a particular stock. Thus, there are no biases in their service.

Instant Paperless Account Opening: Investors can open an account instantly. As investors require only their Aadhaar and Pan number, they can open a paperless account right away with discount brokers.

Access To Information: Investors can get extensive educational materials or studies related to shares on the company websites.

Cons Of Using Discount Brokers

No Branch Support: If you have chosen a discount broker, chances are there you do not have any branch to help you with your paperwork.

No Dedicated Support Person: Most discount brokers do not offer a support person like a dedicated relationship manager (RM) to help you with your trading issues. So, if you are an experienced trader, then trading won’t be an issue. But for beginners, it will be quite a big challenge.

Hidden Charges: Discount brokers attract investors with low commissions. But there may be charges that are completely unknown to the investors. Such as hidden charges for call & trade charges, position squared-off and SMS for trade alerts. Some of the discount brokers are not waived off AMC charges on Demat account at the time of opening.

No Margin: Discount brokers don’t provide margin against your shares or holdings. This is applicable for mutual funds and fixed deposits as well.

In discount broking, there is a lack of professional investment and financial planning services. You can open a Demat and a Trading account online, but it is better to do so with a full-service brokerage firm.

Full-service Brokers not only provide you with a low brokerage charge, but also there are no hidden charges on call & trade, position squared-off and SMS for trade alerts. There is also branch support and a dedicated RM support to provide you guidance and research and studies to keep you informed about the market whereabouts. For beginners, it is like hand holding to the world of trading.

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