A brokerage firm is a financial institution that enables traders and investors of the stock market to buy and sell financial securities. To execute any contract in stock market two parties are required buyer(long position holder) and seller(short position holder). Basically a broker act as an intermediary between buyer and seller and facilitates them to trade on various financial securities. In return brokerage firms receives compensation in the form of commission/fees once the transaction has been executed. We have two types of brokers:
Traditional brokers or full-service brokers are the oldest brokers in the stock market. They usually undertake more then simply acting as an intermediary to execute the trading process.There services also include proper researching of the stock market to offer necessary recommendations to stock market players as well.Often these firms also offer margins loans in addition to a certain client to purchase investment on credit which will be subjected to necessary terms and conditions.
Discount brokers or on-line brokers charge their client comparatively low then traditional brokers.The reason behind low commission charge is that they have their clients perform trade via automated, computerized trading system instead of having an actual stock broker with them to assist with the trading process.
The mechanism which they use to offer such low-cost service is that these brokers execute orders only a few times in a day. They firstly aggregate orders that are being generated by a large number of small investors into one block trades which are formed at some specific times of a day.
Following are some of the benefits of discount brokers over discount brokers:
1)A discount broker does not offer trading recommendations but they enable trading process for a smaller commission than a traditional broker.
2)Traders or investors of stock market who buy sell financial securities through discount brokers save a huge capital on transactions and commission which leave them with extra capital which can further be used to execute a trade and earn rich returns.
3)Often investors are required to hold their position for a long period of time then it is actually required just to compensate large commission.Seldom discount brokers push certain stocks just to earn the higher commission.
4)Some discount brokers offer education tools, in addition, to helping investors and traders make a better investment decision.
5)They offer a time-saving approach to trading by enabling investors to perform trading with an automated trading platform.
When it comes to choosing an optimum broker whether it is a traditional broker or discount broker a perfect choice among them should be made according to the needs.As it is completely dependent on an individuals preference and needs.