Brokerage account / Online trading accountIt is a well known fact that for trading in the stock and commodity markets, clients need a brokerage account (also known as an online trading account). These brokerage account services are offered by stockbrokers registered with the Exchanges NSE, BSE and MCX who in turn charge broker commissions for the services offered.
History of Stock broking companies in Share market ecosystemStock broking companies form a very important part of the share market ecosystem. In the Outcry times, before the exchanges went electronic, the Bombay Stock Exchange was the predominant stock exchange in India. Nearly all Brokers had offices on the iconic Dalal Street. Customers would call the Brokers phones or arrive at the offices to place orders or maybe even for casual gossip. The brokers would provide the customers with a wealth of Information, including market news, updates & rumours. Brokers also acted as advisers & advised clients on what shares to buy or sell. Brokers would appoint sub-brokers. These sub-brokers would also gather & service customers. For their services, sub-brokers too were entitled to a large part of the Brokerage generated. Settlement cycles used to be longer as well. Hence a client in Rural Gujarat may send the cheque via post & Courier on T- Day itself, but the Broker’s funds were blocked for nearly a week till the cheques came & were cleared. Or if he dealt via a Sub-Broker, the Sub-Broker would cash the cheques on behalf the Broker. Many clients too faced a huge lag in getting information on their trades. The Brokers would send the Contract Note via post, which added a lot more time. All of these costs added up & were huge. This is how the Brokerage Business evolved in the Pre-Outcry times.
Evolution of Stock Brokerage FirmsAfter the Exchanges went electronic, many of the costs went down. As orders were routed electronically, the costs of maintaining & operating a Brokerage business went down significantly. Major functions like accounting, delivery of shares etc. became systematic & computerized. A Broker could be rest assured that deliveries would happen on time & the menace of “fake share certificates” ended. Sub-Brokers were started maintaining “Terminals” which displayed prices & could be used to execute orders. People would call up the Broker or Sub-Broker, ask for the quote & place an order. Many continued to visit the premises of the Broker or Sub-Broker & trade right from there. With internet penetration becoming the norm, Brokers let clients trade themselves online. With a Client Code & Password and two factor authentication, clients could trade from their homes. Funds transfers are nearly instantaneously with Net Banking.
Discount Brokers DefinitionDiscount brokers unlike full service brokers, usually offer only pure execution services only. Their bread butter comes from flat fee execution commissions and other services, if any provided, are charged separately and not bundled with their execution service pricing.
Compare Brokerages - Full Service Brokers vs Discount BrokersThere are several factors that clients should consider before selecting their stock broker which include brokerage, service related factors, etc.
|Factors to Compare Brokers||Full Service Stock brokers||Discount Brokers|
|Brokerage Rates||Percentage Brokerage||Flat fee brokerage based on executed order|
|Service Offerings||Bundled services Execution Services Advisory and Research Funding||Usually offer Execution services only. Additional services if any are charged separately|
|Availability of Relationship Manager||Yes in case of high networth clients||No|
|Call and Trade||Available and included in brokerage rate||Facility available at an additional fee|
|Customer Support||Online and Offline||Mostly Online Support|
|Branch Network||Branch network may be available across India||Limited to no branch network due to online business model|
|Conflict of interest||Yes since full service brokers also act as advisors and their fee also depends on the execution of the advisory.||No conflict of interest since no advisory rendered.|
|Demat Account Services||Usually Offered by full service brokers||Only few discount brokerages have their own demat services as well|