Discount brokerage

What is a discount brokerage?

A discount brokerage is a business that allows clients to buy and sell securities but does not provide advice, research, planning or other investment services. Clients who use discount brokerages usually have little to no interaction with a real broker. As a result, discount brokerages charge lower fees.

Deeper definition

A discount brokerage is used for buying and selling securities at a lower rate. A discount brokerage is ideal for investors who trade frequently but don’t need investment advice and have smaller portfolios. Compare that with a full-service brokerage, which offers financial planning, advice and wealth management services.

Discount brokerages usually offer sophisticated online trading platforms that let customers order financial products such as stocks, bonds and commodities. This type of trading is often intimidating to novice investors.

A discount brokerage, like a traditional brokerage, should be registered with the Securities and Exchange Commission (SEC) and be a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corp.

There are also discount brokerages that offer insurance products. They usually charge one-off fees and don’t dispense advice, so they’re cheaper than a typical insurance brokerage.

In real estate, discount brokerages let clients buy and sell real estate, including properties that are on the multiple listing service, or MLS. Redfin is an example of a discount real estate brokerage.

Discount brokerage example

Jane wanted to buy stocks and mutual funds, but didn’t want to pay the high fees of traditional stock brokerages, so she opted to use an online discount brokerage that was registered with the SEC and other appropriate financial regulators. Jane liked the discount brokerage because it charged a lower commission for trades and had an extensive database of free research and information to help her make informed investment decisions. The brokerage also had a mobile app that allowed Jane to make trades and oversee her investments.

Jane was knowledgeable about investing, so she was OK with not talking to a live broker. She could find the guidance and information she needed in the brokerage’s database.

Jane selected mutual funds to put in her IRA and bought and sold stocks through the brokerage’s trading platform. She felt that the discount brokerage offered everything she needed in a one-stop experience and at a much lower cost.

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