¶ … right or wrong answer when it comes to evaluating discount vs. full-price stockbrokers. What is right for one individual is based on his or her needs, and the context of the situation. In general, though, the discount brokers are probably a better value when considering a number of variables, including: free stock information provided on the World Wide Web, capital gains taxes, and stock brokers' motivations (Investitor website).
In order to understand why the discount brokerage firms are "generally" better, one has to understand the difference between the two. Discount brokerage houses are essentially "order takers." You tell them what trades you want to make, and they execute them for a very small commission (usually somewhere around $5-$7 dollars a trade) (FoolU website).
In many cases, signing up for one of the online discount brokerages will earn individual free trades, as will large-scale trading. The reason why these brokerage houses charge so little per trade is that they simply "execute" the trade, and do not actively advise the investor on the right stocks to pick.
When choosing a brokerage house, this is the primary issue one has to rationalize -- do they want a stockbroker's advice, or can they make sound investments on their own? One of the main reasons why the discount brokers are considered better is because there is so much free information on the stock market nowadays. One can turn on the early morning TV, and get the same expert advice from MSNBC that they would from a professional stockbroker. Also, many of these online discount...
For this reason, it is usually more frugal for an investor to read and rationalize the free market information, and subsequently invest through a discount broker.
There are, however, drawbacks to the online brokerage houses. For one, they run their business through a server, and servers are prone to break down (FoolU website). It is not a likely scenario, but one might find him or herself in desperate need of trading or buying when their brokerage server is down. Another downside to the websites is that human error comes into play. Instead of telling an individual what you want, you are typing your request online, and a small mistake could lead to one purchasing a lot more, or a lot less of what they originally intended.
We have explored the pros and cons of the discount brokerage houses, and now it is time to do the same with the established "stock brokers." Investing through them was the predominant way of executing trades before the Internet revolution. They were essentially one's only gateway to Wall Street. As previously mentioned, things have changed dramatically with the new technologies available. The professional stockbrokers have found themselves losing lots of business, but there is still an advantage to using them.
Stockbrokers, like the Wall Street analysts on television, are very informed about the markets. They can…
