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A discount brokerage is a business that charges clients significantly lower fees than a traditional brokerage firm but without providing financial advice. Discount brokers typically allow investors as well as consumers of financial services to buy and sell on-line while offering comparatively fewer services and/or support.
In the securities industry, a brokerage helps clients buy and sell securities on an appropriate exchange. Before the advent of discount brokers it used to be that only the wealthy could afford a broker and access to the stock market. However the development of internet and electronic trading helped to develop discount brokers, which allow investors to trade for much smaller fees.
Discount brokerages usually allow their clients to trade for their own account with little or no action with a live broker. In addition some brokers offer no-commission trades to their clients that hold a balance greater than a specific amount with them.
Typically, discount brokers provide advanced electronic trading platforms which may be appealing to frequent and active traders but may deter some novice investors. Discount brokers typically do not provide financial advice or guidance and provide instead a service aimed at self-directed investors. Traditional brokers in contrast will often provide financial advice and investment planning as well as related wealth management services.
All brokerage firms, including discount brokerage and full-service discount brokerage are regulated in the same way and are licensed by each country's financial regulatory authority.
In the real estate industry, a discount brokerage helps clients buy and sell real estate properties, often listed on the MLS. The growth of discount real estate brokers has caused considerable concern with their full-service, full-fee competitors. In the US, the US Justice Department settled in 2008 with the National Association of Realtors to allow discount brokers to have access to the same MLS home listings as full-service agencies
Discount brokers in the financial services sector provide insurance products, such as life insurance and car insurance, on a discounted basis. The main difference they present to a typical insurance broker is that they work on a lower commission basis, and as such are often cheaper. Instead of commission they charge one-off fees for their services, but do not provide financial advice.
- Comparison of online brokerages in the United States
- Reduced-commission MLS Listings
- Real estate broker