Once you have decided to invest in the stock market, the first question that must be addressed is whether you wish to trade through a full service brokerage or discount brokerage.

What is the Difference between a Full Service and Discount Brokerage?

There are 2 main differences: Commission Fees and Level of Service

Fees Discount brokers are called discount because they generally charge lower fees than the full service brokers do. There are also different degrees of discount brokers. There are the:

Full service discount brokers which offer tremendous amount of literature and almost all the services of a full service broker except for advice. For example, Charles Schwab.

Regular discount brokers which offer less literature than full service discount brokers and do not have as many local branch offices. The discount of commissions is roughly one-third of the commissions of a full service broker. For example, Discover.

Deep discount brokers that only execute stock and option trades at a flat rate regardless of the size of the trade. For example, Scottsdale and Stock Mart.

Computer Discount Brokers which offer the same service as Deep Discount brokers except the service only permits online computer executed trades. For example, Datek and E*trade.

Note that some full service brokers offer an online trading option that is cheaper than talking to a broker.

The reason for the price difference between a full service broker and discount broker is due to the differences in the level of service.

The Level of Service Full service brokers generally provide a whole range of services, including the giving of specific investment advice. Discount brokers do not give investment advice. You decide which stocks you want to buy or sell and the discount broker merely executes the sell or buy order. Discount brokers do make available a great deal of information which can be ordered or found on their web sites, such as investment letters, financial news, financial reports, technical analysis, etc.

Which is Right for You?

For investors who are unsophisticated or simply do not have the time to watch the markets, a full service broker probably makes more sense. A full service broker is a professional who will watch the markets and can keep you abreast of opportunities that suit your objectives. In dispensing advice they can have recourse to an in-house research department whose primary job is to analyze companies in every industry. They will give you ideas that you might not otherwise have thought of. Preferred clients of a full-service broker can also have access to initial public offerings (IPOs). Such clients usually trade a great deal and generate substantial commission revenue for the broker. Finally, you can discuss your investment objectives and purchase investments that are right for you.

For those sophisticated investors who like to do their own research and make their own decisions, then such investors can use discount brokers. By using discount brokers, such investors will pay lower fees and commissions.

If you wish to use a full service broker, it is still useful to learn about securities markets so that you can understand the type of investments that your broker is recommending. With such knowledge in hand you can then make informed decisions affecting your financial situation. Before choosing a broker, speak to a number of brokers and choose one that you feel comfortable with. Try to learn what services each brokerage offers and choose one that best fits your needs and financial objectives.

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