Article Term

Stock Broker: Meaning

A stock broker is the middleman between you and the stock exchange. An individual cannot directly buy or sell shares from the stock exchange. You need to open a trading account with a Broker, who will provide the platform (mobile app, website) to buy and sell shares. In return, the broker will charge a small fee which is called ‘brokerage’ or ‘commission’.

The other slightly-outdated meaning of a stock broker is a professionally-trained individual, who gives buy and sell recommendations (investing advice) to his clients. But these individuals are now called as ‘Financial Advisors’ and not stock brokers.

There are two types of brokers in India; Discount Brokers and Full-Service Brokers. But the difference between them are reducing every year.

Full Service Brokers:

  • These are usually big companies with outlets at several cities in India.
  • Brokerage charges are high.
  • Yearly demat and trading account charges are also on the higher side.
  • Some full-service brokers provide the option of calling them to place buy or sell orders.
  • They also have internet based websites and mobile applications to execute your orders.
  • Some brokers have office where clients can visit their office, mingle with other traders, share knowledge and do your trades.
  • They also provide additional services like investment advice, research reports etc.

Discount Brokers:

  • Entirely online based. To buy or sell you need to use your mobile app or website.
  • You can’t phone call your discount broker to execute orders.
  • The biggest advantage is the brokerage charges are very low for day-trading and zero for delivery.

There have been lots of debates on whether you should opt for ‘Discount Brokers’ or not. To keep the advice short:

  • Opt for discount brokers if you want to save money. This is obviously the biggest reason why discount brokers are doing well.
  • Even for traders who do positional or longer-term trade, discount brokers can prove to be beneficial.
  • Avoid Discount Brokers if you do intraday.
  • Avoid Discount brokers if you aren’t comfortable using mobile or computer – and want to place your calls through phone calls.
  • If you opt for full-service brokers, avoid depending on them for investment advice, do not take their buy or sell calls. You can’t make money this way, instead invest time in learning.
  • If you decide on opting for discount broker, Zerodha is highly-recommended. They are the biggest brokers in the country, who have disrupted and revolutionised brokerage services.

If you have any other question to ask about stock brokers, feel free to post them in the comments section below.

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