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Types of Brokerage Firms

what are brokerage firms

As an investor, you should shop for a brokerage firm just as you would for any other professional service.  Brokerage firms come in all sizes, from "one-man" firms to international corporations.  Similarly, the services offered by each firm and the commissions they charge vary significantly.

Brokerage firms may be classified into three basic types:  full-service, discount and limited products.

Full-Service brokerage firm:

A full service brokerage firm can provide you with a complete package of investment services, including recommending securities, researching a particular issue, or providing individualized service through a salesperson. The firm receives its payment in the form of a commission that is calculated according to the type of security and the amount you are investing. 

A full-service firm is generally best for those who are new to the market or who do not have the time or the desire to do their own investment research.

Discount brokerage firm:

While a discount brokerage also can provide you with a wide range of services, its salespersons are not allowed to give investment advice, to make recommendations or to provide research materials.  For these reasons, a discount firm can offer substantially lower commissions than full-service brokers.  Experienced investors capable of doing their own investment research typically use a discount firm.

Limited products firm:

These brokerage firms specialize in a limited number of securities products, such as mutual funds, limited partnerships or specific bonds.

Category: Forex

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