Discount brokers are a new segment of brokers that is emerging on the stock market. The growth rate of this class of brokers has taken place at a rampant pace because of low rates of brokerage. For discount brokers like Zerodha their USP is low brokerage rates. Let us now explore what a discount broker has to offer along with the type of services provided by them.
More about a discount broker?
The discount broker helps you to trade in a stock exchange and you can go on to buy or sell shares at low brokerage when you compare it to the other stock brokers of the market. Most of the discount brokers operate on the do it yourself module, where they provide you with a trading platform and you are not assisted by anyone. But they do not provide financial planning services as does happen to be the case with full time brokers.
They follow the model where every customer has to register online and they can use their portal and trade. For experts at trading this is a viable solution but someone who is just starting out in this field this does not work out to be a lucrative option.
Time and again it has been stressed that discount brokers provide low brokerage as this appears to be one of the economical services you can avail. In comparison to the full time broker they are expected to save you around 60 % of costs. No form of personalized services like planning, research analysis or real estate is provided by these companies. Even they are not going to deal with high network worth individuals as the commissions charged are low.
Traders place their requirements online and serve through an online mode so that you end up saving on maintenance and infrastructure costs. Discount brokers are expected to come up with advanced trading platforms which mean it is the pulse of the business. If there is already a robust trading platform, the customer already happens to be in an auto pilot mode, and they do not feel the need for personalized services.
How a discount broker makes money?
In normal case a stock broker makes money from the commission undertaken on any trading. The traditional broker commissions rates were large and a broker used to take a large amount of money home. Even some of the broker does go on to charge a flat fee of Rs 10 to Rs 20 per trade. Now the question might strike you is how does the broker make money.
Firstly a discount broker has a reduced overhead costs. This means initial investment like renting out space, travel costs, stationery have all reduced. The only infrastructure that a discount broker provides you access is with a trading platform. They do go on to invest in a robust platform and provides access to the customers. By following their own pace the customers can invest on these platforms making their life a lot easier. All of them are based on the DIY technology.