A stockbroker is a regulated broker, broker-dealer, or registered investment adviser (in the United States) who may provide financial advisory and investment management services and execute transactions such as the purchase or sale of stocks and other investments to financial market participants in return for a commission, markup, or fee, which could be based on a flat rate, percentage of assets, or hourly rate. The term also refers to financial companies, offering such services.
The other names or titles include share holder registered representative (in the United States and Canada), trading representative (in Singapore), or more broadly, an investment broker, investment adviser, financial adviser, wealth manager, and investment professional.
Share brokers in India are governed by the Securities and Exchange Board of India Act, 1992 and brokers must register with the Securities and Exchange Board of India. The National Stock Exchange of India and the Bombay Stock Exchange via brokers, provide an ecosystem to investors to trade in capital markets through various channels- broker offices, investment advisor or screen-based electronic trading system. An individual employed by an investment firm must complete the National Institute of Securities Markets (NISM) exam and apply to SEBI for registration as an Investment Advisor.
Stock market advisory and research services are highly regulated in India. Only SEBI registered stock advisory and investment research analysts are allowed to do so. The complete details of these authorized persons are available on website of SEBI for protection of investors.
A full-service broker is a traditional broker that offers investors numerous services, such as stock trading and investments, research, advisory, tax planning, retirement planning, etc. Full-service brokers have physical branches, and some have online platforms in addition to physical branches.
Some full-service brokers in India include but are not limited to IIFL Securities, Sharekhan, Motilal Oswal, SBI Securities, Kotak Securities, etc.
A discount broker is a broker that allows investors to execute buy and sell orders at relatively lower costs. Popular discount brokers in India are Zerodha, Upstox, Groww, 5paisa, Paytm money, etc.
Advantages of Discount Brokers
Cost-effective brokerage services:
Discount brokers offer limited services to their clients. Moreover, they incur lower operational costs due to lesser physical infrastructure. These two may be the primary reasons they provide services at lower costs. Lower brokerage charges ultimately reduce friction costs, increasing the overall returns for investors/traders.
Discount brokers usually only allow users to trade in the stock market through their online platforms and do not promote third-party products. Therefore, investors using discount brokers may make an investment decision without being misguided.
Disadvantages of Discount Brokers
Discount brokers usually do not offer add-on services such as research, advisory, retirement planning, etc. Therefore, when investors choose a discount broker, they would be required to research on their own to make investment decisions. Moreover, discount brokers either do not provide portfolio management services or offer them through additional subscriptions.
Investors who lack knowledge and experience in the stock market and need guidance to make investment decisions may find this option less suitable.
Unavailability of branch services:
As most discount brokers operate online, the investors preferring to make investment decisions after discussing the investment with the relationship manager may not find a discount broker attractive.