Discount Brokerage Firms

By: Eric Morris

Stock brokers offer varying ranges of services to their clients; accordingly their chargeable commission rates differ. While many brokers provide a smattering of value-added services to their clients - including market research input and analysis – other brokerage firms' offerings are relatively modest. In stock market jargon, these much more basic firms are called discount brokers.

Because discount brokerage firms provide few services beyond executing trade deals for their clients, the commissions charged by these brokers are relatively low. They are very popular with small investors in the stock markets. Discount brokers are also preferred by small traders at commodity exchanges.

There are two basic types of discount brokers operating in the stock markets: standard discounters and deep discounters. The former offer discounts of up to 50% of commissions charged by the full-service brokers; the latter boast concessions as high as 90%. No wonder small investors usually fall to these tempting offers.

Those small investors who are fairly familiar with the functioning of the markets can save a lot on payable commissions by opting for discount brokers. These investors would make their trading decisions on the basis of their own experience, rather than on any specialized market intelligence - intelligence for which the full-service brokers charge handsomely. Nevertheless, it is generally advised that new entrants in the markets cannot do without the support of specialized market intelligence. The functioning of the markets is very complex and unpredictable, and involved risks may cause an adventurous stock market greenhorn big financial losses.

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