What Is a Discount Broker

Now that you've decided you want to start investing your extra money, you have to start strategizing and purchasing investments. How do you buy investments? You can't go to the store and get them or order them and have them shipped to your house. If you want to buy stocks, you need to use a broker.

A stock broker is an individual at a brokerage firm that goes on the floor at the stock exchange and buys stocks. Stocks traded on the NASDAQ are done electronically. As investors, when we talk about brokers, we are usually referring to the brokerage firm as a whole.

There are two main types of brokers: discount brokers and full service brokers. Full service brokers were around before discount brokers started up in the 70s. Discount brokers have only recently started offering brokerage services entirely online.

A full service broker is a broker that helps investors choose investments, gives them advice, and charges a lot of money. Some brokers easily charge over $100 for a trade that would only cost $10 or less at a discount broker.

Full service brokers offer services you may or may not need. If you want to be completely hands-off with your investments and leave it to the pros, a full service broker is fine. However, if you want to make as much money as possible, save money on fees, and choose your own investments, use a discount broker.

A discount broker only charges you for the actual trade. You won't get advice or any help beyond the tutorials available online, but many investors don't need this. Even if you aren't comfortable choosing individual investments, go with a mutual fund. No load mutual funds don't charge extra fees, and they allow you to invest without doing a lot of initial and ongoing research.