What Is a Discount Broker and Should You Use One

A discount broker is a type of online brokerage firm that offers low-cost trading services to its clients. They often have lower fees and commissions compared to traditional full-service brokerages.

Discount brokers typically don't offer personalized investment advice or hold your hand through every step of the trading process. They're designed for self-directed traders who are comfortable making their own investment decisions.

One of the key benefits of using a discount broker is the significant cost savings. For example, some discount brokers charge as little as $4.95 per trade, while traditional brokerages may charge upwards of $50 per trade.

To get the most out of a discount broker, you'll need to be willing to do some of the legwork yourself. This might include researching investment options, setting up your own trading accounts, and monitoring your investments.

A discount broker is a type of real estate agent that offers lower commission rates compared to traditional full-service brokers. They often provide a more limited range of services.

Discount brokers may list your home on the multiple listing service (MLS), but the level of detail and inclusion might be limited. They can also provide online marketing services, but the extent of this service may vary.

One key difference between full-service brokers and discount brokers is the level of personal representation. Discount brokers may not always be available for live in-person representation, and they may not provide suggestions for staging or repairs.

Here's a comparison of the services you can expect from a discount real estate broker and a top real estate agent:

Discount brokers may also have limited access to professional photographers or virtual video services, and they may not provide referrals to reputable contractors or schedule showings.

There are several types of discount brokers, each with its own unique characteristics.

A discount broker can be a full-service broker, which means they offer a wide range of services, but at a lower cost than traditional full-service brokers.

Some discount brokers specialize in online trading, allowing customers to manage their accounts and make trades from the comfort of their own homes.

Discount brokers can also be categorized as direct access brokers, which provide customers with direct access to the market, eliminating the need for intermediaries.

The 2-for-1 model is a discount broker option that can seem appealing, but it's less common than other models.

This model works by offering to sell your home for free as long as you also buy a home through them, essentially getting paid on the buying side of the transaction from the seller of your new home.

It generally doesn't save the seller much money, and in some cases, it could actually end up costing you more.

Full-service companies, on the other hand, offer a wide range of services that can make a significant difference in the quality of your experience.

Full-service companies often provide in-person representation, which can be a game-changer when it comes to selling your home. According to Example 1, top real estate agents provide live in-person representation, which is a service that discount brokers may not offer.

Full-service companies also provide a comprehensive range of services, including evaluating your home, suggesting where to clean, declutter, and repair, and even hiring professional staging services. As Example 1 notes, top real estate agents provide custom flyers and signage, which can be a valuable marketing tool.

In contrast, discount brokers may not offer these services, or may charge extra for them. According to Example 1, discount brokers may not provide custom flyers and signage, and may not even offer in-person representation.

Here's a comparison of the services offered by full-service companies and discount brokers:

As you can see, full-service companies offer a much wider range of services than discount brokers. If you're looking for a hassle-free experience and want to maximize the sale price of your home, a full-service company may be the way to go.

The history of discount brokers is a fascinating story that spans several decades. In the 1980s, online trading first emerged, with Charles Schwab introducing The Equalizer, a DOS-based portfolio management and trading tool, in 1984.

Charles Schwab's innovation paved the way for competitors like TeleBroker, which introduced the first phone-based keypad trading application. StreetSmart, a PC-based trading software program, also entered the market around the same time.

E-Trade became the first online brokerage service provider in 1992, and by 1995, it generated 80% of its revenues from trading commissions. This marked a significant shift in the industry, as more discount brokerages joined the market.

Larger firms like Charles Schwab and Fidelity began offering discount broker services, and over the last decade, newer startups have also entered the scene. Today, many brokerages offer commission-free trades, a far cry from the pricing models of the past.

Discount brokers offer a flexible way to invest, and one of the best reasons to consider them is cost. They charge lower commission fees to trade, and you're not paying additional costs for professional investment research or advice.

Discount brokers make it easy to invest from virtually anywhere, since you can execute trades online or via mobile apps. This convenience is a major advantage, especially for those who want to make investment decisions quickly.

Another advantage of using a discount stock broker is the variety of investments to which you have access. You can buy stocks, mutual funds, ETFs, bonds, and even IPO stock, commodities, or options. This makes it easier to build a diversified portfolio in one place, with minimal costs.

One of the biggest drawbacks of discount brokers is that they often require you to be self-directed, which can be intimidating if you're new to investing. However, this also means you can choose when to buy or sell and how much of your portfolio to allocate to one security versus another.

Discount brokers are generally a low-cost way to invest, which means you can preserve more of your investment returns over time. However, they may not offer the same level of research or advice as full-service brokers, so it's essential to do your research before picking a broker.

Discount brokers can vary in cost, but most no longer charge for trading stocks, ETFs, and mutual funds. They do, however, charge for trading options, futures, and bonds.

A typical discount broker's commission for trading stocks, ETFs, and mutual funds is zero, which is a significant cost savings compared to traditional brokers. This is a major advantage of using a discount broker.

Using a discount agent or broker can save you money on commission fees, with a typical commission ranging from 2% to 4% compared to the traditional 6% commission. This can result in significant savings, especially when selling a high-priced home.

The cost of working with a discount broker can vary, but most no longer charge for trading stocks, ETFs, and mutual funds. However, they do charge for trading options, futures, and bonds.

A typical real estate agent's commission is 6%, but discount agents typically charge a lower commission, often between 2% and 4%. This can save you significant money, especially if you're selling a high-priced home.

Flat-fee agents charge a set fee for their services, regardless of the sale price of your home. The typical fee for a flat-fee agent is around $3,000.

Discounted commission percentages can also save you money. For example, if you sell your home for $200,000 and the agent's commission is 2%, you would pay the agent $4,000.

Discount brokers may also offer reduced rates on closing costs, saving you hundreds or even thousands of dollars.

Here's a comparison of the services you can expect from a discount real estate brokerage and a full-service real estate agent:

Working for a salary instead of commissions can be a double-edged sword. There's less incentive to put in maximum effort as they would if their livelihood was on the line.

Discount brokerage agents who are paid a salary may not have the same drive to sell homes for top-dollar. This means you could actually end up losing money on the sales price of your home.

Bringing in the bacon takes grit, commitment, and long hours, which is a key difference between commission-based and salary-based agents.

Discount brokers may seem like a one-size-fits-all solution, but the truth is, service levels can vary greatly depending on the broker you choose.

You'll likely still get professional service from a discount agent, even if they're not the most expensive option. They'll be able to help you with all aspects of selling your home, from pricing it correctly to negotiating with buyers.

Not all discount brokers offer the same level of service, so it's essential to research and compare different options.

If you're the type of person who doesn't need any human contact, the cheapest of the discount brokers may work for you.

Choosing a discount broker requires some research and due diligence. Research the broker's reputation by reading reviews and testimonials to gauge past clients' experiences.

A strong track record is key, even with a discount broker. Check the services included to ensure they provide what you need, like MLS listing and marketing. Understand the fees and know exactly what you'll pay, as some brokers charge extra fees on top of the discounted rate.

Here are some key things to consider when choosing a discount broker:

Choosing an agent from a discount brokerage can be a bit overwhelming, especially if you're new to the process. Researching company websites and reading consumer reviews can give you a good idea of what to expect.

Consider the agent's reputation and track record. A strong reputation is key, even with a discount broker. You can find reviews and testimonials on the company's website or on review platforms.

Look for an agent with experience in your local market. They should know the area and be able to provide valuable insights to help you sell your property. Don't be afraid to ask about their experience and how they'll market your property.

Some discount brokers may offer limited services, so make sure they provide what you need. Check the services included, such as MLS listing and marketing. You want to ensure you're getting the most out of their services.

Understand the fees involved and what you'll pay. Some brokers may charge extra fees on top of the discounted rate, so get clarity upfront. You can also ask about any credits or incentives you may qualify for, such as discounts for supporting local communities.

Here are some key questions to ask potential agents:

By asking the right questions and doing your research, you can find a reliable and effective agent from a discount brokerage to help you sell your property.

Discount brokers aren't just for small portfolios, they're a viable option for anyone looking to save on commissions. You can pay as little as 1% in listing fees with a discount brokerage.

The services provided by discount brokerages are basic, but they still include listing your home in the local MLS, general marketing, documentation, contracting, and legal assistance. These services are often provided through a comprehensive online platform.

All trades, regardless of size, go through the same stock market, making the speed of execution less important for long-term investors. Paying a higher commission per trade with a full-service broker may not be necessary if you have the knowledge and experience to manage your own money.

Opening an account with a discount broker can be a first step toward growing wealth. Because they're generally a low-cost way to invest, you're able to preserve more of your investment returns over time.

Discount brokers have had to adjust to account for their presence in the market, which is generally a good thing for investors.

Each broker won't be the right fit for each investor, so it's essential to do some research before picking a broker.

Investing in your goals is easy when you open an investment account with a discount broker like SoFi Invest, which allows you to invest in stocks, ETFs, mutual funds, alternative funds, and more.

SoFi doesn't charge commissions, but other fees apply.