The advent of technology has made stock markets a busy place with innumerable trades a day. As trading becomes much easier and simpler, more and more investors are putting aside their inhibitions to start trading in the stock market today. Brokers have played an important role in this growth.
According to the regulations of the Securities and Exchange Board of India (SEBI), you can’t buy or sell stocks directly from the exchanges as a retail investor. Instead, your trades will be wired through a stockbroker. Competition and technological advancements have helped brokers make investing easier for Indians. Let’s understand stockbrokers and see how they help you invest in the stock market.
What are brokers?
As mentioned earlier, for retail investors to trade in the stock market, they have to rely on a broker to do it for them. Brokers act as an intermediary between the exchanges and the investors to carry out these trades. Brokers provide these services for a fee. This fee and its structure could be different depending on what type of broker is providing you with the services.
Mainly, there are two types of brokers – traditional brokers and discount brokers.
A traditional broker provides you with a wide range of services for a bigger fee while a discount broker provides you with only the basic and necessary services for a much smaller fee. But the fee is not the only difference between these two, let’s explore.
As mentioned above, a traditional broker will provide you with an array of services such as stock, commodity, and currency trading, financial advisory, research help, asset management, and even retirement planning. They will even help you with investment decisions such as suggesting which stocks to invest in. They have a more personalised approach with the investors and often the investors will have a direct point of contact with the broker.
Traditional brokers also allow you to trade in different instruments such as stocks, forex, mutual funds, bonds, etc., and they even provide services for IPO investments. For all these services, traditional brokers charge you much more than discount brokers, making it more suitable for retail investors who carry out bigger trades. They are often chosen by investors who trade full-time. But if you are a retail investor who doesn’t have much trading volume, their fees could eat up your profits as each trading transaction will have fees associated with it.