Working with a discount brokerage can provide cheaper access to investments. This can lead to better decisions and bigger profits. At the same time, investors are not going to be able to get as much detailed service as they would with a full-service brokerage.
The biggest advantage of working with a discount brokerage is that the investor can save money on transactions. When working with a regular brokerage, investors often have to pay large amounts of money in commissions to the broker. These commissions might be based on the volume of the trade or they might be a flat fee. If an investor trades frequently, these high commissions can add up quickly. By working with a discount brokerage, an investor can save significant amounts of money and increase profits.
When an investor knows that he or she has to pay a large commission, it can also lead to bad investment decisions. For example, if the investor opens a trade, he or she knows the trade will have to make up for the commission before any profit is realized. The investor could hang onto a trade too long to make up for the commission and end up making a mistake. This can cause an investor to stay in a trade too long and lose money.
Another advantage of working with a discount broker is that the brokerage will not be as likely to push specific investments on the investor. Full-service brokerages often try to promote specific investments so investors will provide them with more commission. Discount brokerages know they will be able to make money on volume because more investors will trade more frequently.
Even though an investor can save money by working with a discount brokerage, he or she will not be able to get the same level of service provided by a full-service brokerage. Most discount brokerages encourage investors to do their own research and come up with their own investment decisions. A full-service brokerage is going to be able to sit down with an investor and come up with investment goals. The full-service brokerage will then help the client choose individual investments.
Another disadvantage of working with a discount brokerage is that the investor may not have access to as much information about investments. Full-service brokerages often provide investors with great tools that can be used to analyze investments. Many discount brokerages do not provide access to these types of tools.