If you plan to invest in stocks, you will need to utilize the services of a stock broker, who may be an individual or a firm acting as a middleman between the clients and the market.
There are two types of brokers/brokerage firms in the market, full service stock brokers/brokerage firms and the discount brokers/brokerage firms.
The traditional service stock brokerage firms design the entire investment portfolio for their clients based on their financial needs and abilities and also carry out the transactions for them.
These firms also offer a wide array of services, products, investment strategies and research facilities for stocks, bonds, derivatives and insurance.
Needless to say that charges for these services are relatively higher.
These firms are usually paid according to the number of times you trade and they are not paid on how well your portfolio performs.
On the other hand, discount brokers simply carry out the transactions and so charge customers significantly lower fees than the regular broker firms.
This is natural since they provide limited services or advice as compared to the traditional brokers.
In fact, the people who usually approach these brokers are the ones who have adequate knowledge of stock market and they know what they want to buy or sell.
So what they actually want the discount brokerage firms to do is to carry out their transactions for them.
That said, discount brokerage is best suited for the people who can make their own investment decisions.
This is not to say that these firms will not offer advice if they are asked to do so-only that the client would have to pay extra in terms of higher trading fees and commissions.
These brokers are usually paid either salary or commissions or even a mix of the two.
So if you do not have adequate knowledge of the market, then you should opt for a traditional broker.
But if you decide to opt for a discount broker, you should do some ground work.
You need to find out if the firm requires you to open a minimum opening deposit, and if so, for how much.
Then again, there may be firms that charge fees for operating your account, transferring of assets out of your account or charging you for an inactive account.
Besides checking out the reputation of the broker, you can also ensure if the firm offers some research tools so that you can manage your investment.
You also find out if the firm provides customer service and what their turn around time is in answering queries and providing assistance to your account enquiries.
Equally important is the fact that the brokerage firm should provide you with the necessary security and privacy for your account and dealings.
All said, discount brokerage offers the perfect opportunity for the people who want to participate in the stock market at the lowest possible costs and with decision made at their own discretion.
So if you decide, a discount broker is just the thing for you, just be sure that the firm you choose is able to meet your business requirements at the best possible costs.