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Finance

What are Discount Brokers?

Diana Bocco
By Diana Bocco
Updated Feb 18, 2024
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Discount brokers are a great middle point option for people who want to become involved in investing but are wary about taking the step alone. Discount brokers do not offer clients any investment advice and do not walk through the process of investing. But if you know what you are doing, discount brokers will act in your behalf and buy or sell stocks and conduct option trades. Full-service brokers, on the other hand, will advice you on what to buy, when to sell, and how to divide your investment money. Some discount brokers do offer monthly newsletters in which recommendations are printed, but this is not a standard service and should not be expected.

Discount brokers offer different services, often depending on how big the local demand and how extensive the competition is. For example, a broker may charge as little as $10 US Dollars (USD) per transaction, or have percentage-based per-transaction charges. When you are researching discount brokers, make sure you ask about additional fees for things like transferring assets, bank account transactions, and IRA custodial fees.

Deep discount brokers, an even cheaper service, should only be considered by those who know the investment market well and do not need anything aside from the execution of stock sales and buys. Deep discount brokers normally charge a small flat fee per transaction rather than operating on percentages. The most popular discount brokers are Ameritrade and TD Waterhouse, while Scottrade leads the way when it comes to deep discount brokers.

If you are considering discount brokers, here are some questions you should ask potential brokers.

  • What is the minimum opening investment you require?
  • Is there an account maintenance fee, or do you charge additional fees if I do not trade frequently?
  • Do you offer stock and research reports so I can keep up with the current market?
  • Do you have a local office or do you conduct all your business online?
  • Do you offer phone-based customer service? Good discount brokers usually have a 24/7 hotline where you can get stock quotes or ask a question.
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