Brokerage accounts are bridges between investors and investment professionals. Those brokerage accounts are divided into two, full-service and discount brokers.
Both of those accounts have different in level, cost, and types of services. Your investment will be highly affected by the types of brokerage accounts you chose.
Thus, before you choose one of them, you need to understand the differences between those two.
Full-service broker
The full-service broker usually called as a traditional broker. In this type of account, you will work with someone who will become your sounding board. This person will answer your phone calls and place trades for you.
Additionally, this person may also recommend investment or help you do things. However, for this complete services, you will be charged an expensive commission.
That high commissions usually are calculated by using a percentage of your total assets and paid every year. It usually ranges from 1% to 2% or more.
The percentage may seem small, yet if you are looking at thousands of dollars in annual management expenses just for a $100,000 account.
Some people may think that this worth the cost since they do not need to worry about their investment.
Discount Broker
A discount broker, in contrast, provides tools for you to trade yourself. In other words, you handle the buy and sell orders.
In this account, you have no one standing between you and your money. Thus, you, literally, can do anything with your money. That includes selling out during a panic or buying on margin during a boom.
Also read: Defining Brokerage Account Confirmation
For professional or experienced investors who manage their own money, this can be ideal because you don’t pay for services you don’t want or need.
For instance, an E-Trade brokerage account is a discount brokerage account. Some brokerage firms offer both traditional and discount brokerage accounts to investors, allowing them to select which works better for their situation.
