Brokerage firms execute trades for customers, serve as custodian of customer’s assets, provide financial research and advice, present live stock quotes, and provide several additional portfolio and investment services. Brokerage firms typically have a minimum deposit requirement and charge commissions, fees, and interest for services.
Brokerage firms may specialize in specific asset classes or investment functions.
Full-service brokerage firms
A full-service brokerage firm is a financial institution that provides a wide range of services to its clients, from investment advice and portfolio management to research and execution. Full-service brokerages typically have a team of specialists who can provide insights and recommendations on various topics, including stocks, bonds, and mutual funds.
Full-service brokerages offer a one-stop shop for all their financial needs for many investors. While full-service brokerages can be more expensive than discount brokerages, they often provide more value in the form of personal attention and comprehensive services.
Discount brokerage firms
A discount brokerage firm is a financial services company specializing in offering discount stock and option trading services. Discount brokerage firms typically provide fewer services than full-service brokerage firms and are known for lower fees.
Discount brokerages usually offer lower trading fees than traditional brokerages and a broad range of investment tools and resources to help their customers make more informed investment decisions.
The distinction between full-service and discount brokerage firms has become less clear as service levels become more homogenous and industry competition for customer acquisition has increased.
Brokerage firm services
Brokerage firms provide a commodity-like service in trade execution and generate additional revenue through value-added services or platform subscription fees.
The majority of revenue for brokerage firms comes from commissions charged per transaction or account fees.
Many brokerages offer different pricing structures and tiers based on account activity or assets under management. For example, a client with a high account balance may be eligible for free or discounted trades. Similarly, a client who frequently trades may also qualify for lower commissions.
Many brokerages also offer investment products and services beyond traditional brokerage accounts.
For example, some firms provide banking services, such as checking and savings accounts, credit cards, and loans. Others may provide wealth management services, including tax preparation, financial planning, and trust services.
Investors must utilize brokerage firms to place trades unless they are active members of an exchange or participate in a direct stock purchase plan. Trades can be executed electronically or called in directly to the broker.