InvestorQ : How can discount broking (low cost brokerage) benefit the serious long term investors?
Anu Biswas made post

How can discount broking (low cost brokerage) benefit the serious long term investors?

Priyanka N answered.
3 years ago

The popular perception is that the discount broking is principally meant for traders only. That is not true. Discount broking can be beneficial to investors also Here are some ways, investors can benefit from low cost broking.

· Discount broking is a no-frill approach that only charges for the execution of the trade. Typically, the discount broker will charge you zero brokerage for cash market transactions but they will charge you higher brokerage for intraday, futures and options trading. This makes it favorable for cash market traders.

· Most cash market traders happen to leave margins with the brokers on which they earn nothing. This zero brokerage concept compensates for the float they provide to the broker. Thus the cash market trader who pays the entire margin in advance and also brings the lowest risk to the broker pays the lowest charges.

· A very important aspect for investors is that discount broking separates execution from research and advisory. Normally, pricing of broking services is quite opaque because the trader does not get to know how much they are paying for execution and how much for the research and support services. Discount broking makes a clear distinction. You only pay for the execution platform and the rest you take care of yourself.

· This makes it possible for the investor to make a trade-off and even rely on outside research or own research and only pay the broker a small fee for execution. The investor is therefore in a position to decide whether they require research at all, whether they want to trade on their own research or rely on research of outside professionals.