Discount Broker Guide

Richard Montana | October 21, 2022

What is a Discount Broker?

Discount brokers will let you use their trading platforms to buy and sell various assets with low trading fees, including Forex, Commodities, Cryptocurrency, Stocks, Indices, Options, ETFs, CFDs and Futures. Usually, discount brokers can afford to offer discounted trading fees as they are well established and have enough trading volume to compensate for the lower fees that they charge.

Discount brokers may also not mark-up spreads or charge as much commission as other brokers, especially if they use a vast array of liquidity providers (LPs) and can therefore provide some of the best bid/ask quotes to ensure spreads are as tight as possible and trade execution speeds fast. If a broker is a market maker and uses a dealing desk, there can be a conflict of interest. These brokers can mark-up spreads and charge an extra commission which increases overall trading costs.

Whichever trading broker you choose, you will need to pay some fees. It therefore makes sense to shop around and compare brokers to identify the best discount brokers as this can save money from your online trading in the long run. You will find that there are lots of MetaTrader brokers which is one of the most user-friendly platforms that gives convenient market access for manual and automated trading strategies.

What Fees do Brokers Charge to Trade Online?

Each of the trading brokers fees will vary depending on the trading products and services that they offer. Some brokers will charge a commission, some will charge a spread and others will charge both. Then there are other fees to consider which can include account funding fees, inactivity fees and platform fees. There is usually the rollover/swap fee for holding a trading position overnight with a brokerage firm, unless using an Islamic trading account that complies with Sharia law. These are swap free but usually incur a spread or commission mark-up to cover the brokers costs.

In general, the less the broker charges in fees, the more you can save in online trading costs over the long term. Many traders will always look to identify which broker has the tightest spreads and lowest commissions to save on costs, but it is important to consider other factors such as the brokers regulation, trade execution speeds, slippage, customer service, trading platforms and tools. These can also have an impact on the overall performance of an online trading strategy. It is perhaps not that beneficial having zero fees and zero spreads if the broker is lacking in other areas.

Broker fees include:

  • Commission for entering and exiting trade positions
  • Spread – the difference between the bid and ask price quotes
  • Swap/rollover fees for holding a position overnight
  • Account deposit and withdrawal fees
  • Account inactivity fees
  • Trading platform and tools fees
  • Educational resources fees such as webinars and trading courses

What Makes a Good Discount Broker?

The best discounted brokers will have the lowest fees for trading and conducting other related activities such as making deposits and withdrawals to and from your trading account. Tight spreads can also help to save on trading costs, especially for active retail traders. In addition to offering discounted trading costs, they should have a range of online trading products and services. If you are new to trading and need as much guidance as possible, you might want to explore our best brokers for beginners.

Are Discount Brokers Safe?

All of the brokers in our best discount broker list are regulated by at least one top tier regulator. These regulators can help to give investors the peace of mind that they are using a reputable brokerage firm that must comply with strict ruled and regulations that are put in place to protect investors. Of course, as with any company, brokers can also run into difficulties. In this instance, it is vital to be aware of what will happen to client’s funds. If using a regulated broker, they must be held in segregated accounts and thus should be safe in a worst-case scenario. Furthermore, some brokerages are covered by compulsory or optional insurance policies to give extra protection to client funds.

Choosing a Discount Broker

The main thing to check for is the commission that the broker charges for the assets you wish to trade along with the spreads and other general fees. When choosing a broker to trade online with, it is also very important to consider the other brokerage services that they offer. Whilst low fees are good, they may not be as useful if the broker does not have any other services that would be useful to you because they cannot afford them due to providing discounted trading.

The best discount brokers will not only offer low fees but they will also have a range of trading products and services. They should be regulated by a respected authority and have a range of trading instruments across multiple asset classes. The broker should provide a selection of trading platforms, trading apps and tools to choose from along with flexible account types and convenient funding methods. Other things to look out for include educational materials, social trading platform integration, daily market analysis and excellent customer support.

What to look for in a discounted broker:

  • Low commissions
  • Tight spreads
  • Low accounting fees
  • No inactivity fees
  • Regulation
  • Range of asset classes
  • Trading platforms
  • Trading tools
  • Educational resources
  • Social trading
  • Daily market analysis
  • Account types
  • Funding options
  • Excellent customer support

Conclusion

A discount broker provides you with quintessential trading services at a reduced commission rate. Discount brokers will provide the tools to complete buy and sell orders for clients. However, the main difference between them and a traditional brokerage is that they do not provide specific trading advice or other services. Thus, the primary appeal of a discount broker is to investors who manage their own investments.

With so many online brokerages to choose from and all of the different broker fees to consider, it can be overwhelming at first when deciding which is the best broker for your individual trading needs. Hopefully this guide has helped determine some of the most important things to consider whilst also making you aware of potential options if you are looking for a discount broker.

Remember, the lower the brokers commission and spreads, the less your trading costs can be over the long term. However, there are other additional fees to consider and it may not always be ideal to sacrifice additional brokerage services for low fees.

Take your time to research brokers and do your own due diligence, the above information is only for educational purposes and not advice. Please feel free to browse our best discount brokers if you are looking for some more inspiration before you get started.

About the Author

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Richard Montana
Richard has many years of experience in broker research, testing, analysis and reviews. He knows what to look for through years of trading himself with different brokers and listening to the feedback of others.

Review Methodology

For all of our broker reviews, we research, validate, analyse and compare what we deem to be the most important factors to consider when choosing a broker. This includes pros, cons and an overall rating based on our findings. We aim to help you find the best broker according to your own needs. You can read more about our review process.


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