Traditional and discount brokers

A broker is an intermediary company between an investor and an exchange. More precisely, it executes investor’s orders on his/her trading account. There are two main types of brokers: traditional and discount.

Traditional broker

A broker is called traditional, in case it provides the client with a full range of services:

• receives orders and takes them to the market;
• gives advice when buying or selling any asset;
• provides information about the state of the market;
• manages the investment portfolio in case of the desire of a client.

When choosing traditional brokerage services, the company basically provides an investor with a personal manager to serve him/her online or by phone. A trader pays very high commissions for getting personal service.

Discount broker

Discount brokers offer minimum services to traders. They often receive orders and take them to the market. They are called discount because of the low cost of services. Overheads of the discount broker are brought to the minimum, therefore they charge a very small commission which attracts more clients.

Which broker to choose?

The choice of a broker depends upon your capabilities and level of professionalism. Traditional brokers will work with you individually: they will offer investment ideas, will periodically inform you about the state of your accounts and provide reports on them. In addition, traditional brokers will offer a wide range of sources of economic information and analysis.

However, if you are an experienced trader and have a reliable trading strategy, control your risks, understand technical analysis and fundamental factors affecting the market, then, the best option for you is trading on an exchange through a discount broker. Unlike traditional brokers, discount brokers do not offer personal services to clients, but, by working with them, you can significantly save on the amount of remuneration for the services offered.

It is worth mentioning that with the development of technology and appearance of online trading, the border between full- service and discount disappeared to some extent, because brokerage companies started to provide their clients with access to high-quality products and technologies for a small amount of commission.