Discount Stock Brokers vs. Full Service Brokers

You need a stock broker to invest in shares on the Australian stock market, but how do you pick the right one and what are the pros and cons of each? With the right information, you can choose a stock broker to suit your requirements and maximise financial gains.

Firstly, ask yourself questions about your own stock trading plan, such as what are your goals and how long is the term of this investment? You should also ask the stock broker some questions about the services they provide and where they obtain their information.

Once you have an idea about suitable investment plans and how to assess the quality of a broker, you may find yourself contemplating the pros and cons of using a discount broker (also known as a non-advisory broker) or a full service broker. You may have done some research on the stock markets and believe you have enough information to make the most of stock trading. Alternatively, you may not feel confident of investing without professional advice.

Here is a list of important points to help you weigh up which type of stock broker best suits you:

Discount Brokers

• Non-advisory brokers offer lower fees. This becomes even more important when you are investing with a smaller amount of money. For example, if you are planning to buy shares with the minimum parcel amount of $500, paying a $100 brokerage fee is going to set you behind 20% percent straight away. A discount broker may allow you to trade from as little as $19.95, which greatly improves your profit margin.
• Often discount brokers provide access to many technical analysis and market research tools. While they don't offer direct financial advice, you do not have to be left in the dark on the latest stock market news and relevant trends.
• You may receive stock tips and other useful information from a discount broker in context. You should have a grasp on the plan for your investment, so that when a stock tip comes up, you can easily decide if it is relevant to your investment size and structure.
• For example, a stock tip may be offered on a blue chip company that suits long-term investors. If you were looking for shares to invest in over the long term, this could be useful, but if you wanted a significant profit in the next six months, obviously you may be disappointed. Understand your investment plan and employ a disciplined stock trading strategy.
• You could have to spend more time researching and understanding the stock market. Unless you are a financial professional, you may make mistakes that cost you money.
• You may have access to stock market reports or related newsletters. Make certain the quality of information is to a trustworthy standard, and if you are struggling to understand the information presented to you, perhaps it's time to consider a full service broker - you don't want to risk your investment money foolishly or unnecessarily.

Full Service Brokers

• They are more expensive, but if it makes you better money, the cost is negligible. The more investment capital you plan to use on the stock market, the more beneficial it is to use a full service broker. It would be more than foolish to risk your life savings on something you don't explicitly understand.
• They offer professional service to please you. You're the customer and your business keeps them employed, so you can guarantee the full extent of their expertise to improve your financial returns.
• Full service brokers may have dedicated teams to perform market research around the clock. Not too many individual investors can perform this task themselves.
• You can expect your broker to inform you of any relevant price shifts or share price opportunities that arise. They can make recommendations to help you best manage your portfolio.
• You can use your full service broker as a professional sounding board. If you come across information that leads you to believe that investing in a certain company's shares will reap rewards, your full service broker can give you specific professional advice and assessment beyond what an individual investor can normally achieve.

You could always try a combination of stock brokers, and it really comes down to the amount you are investing, the risks you are willing to take and the purpose of your investment. Individual financial businesses will have different services that are provided, and different stock brokers have their own strengths and talents.

Use as much information as you can to get an understanding of stock brokers and the Australian stock market in general, and make certain you find a broker that suits your requirements so that you are making the most of your investment.