The term discount brokerage house refers to a firm that charges a commission for providing services such as the buying and selling of securities. In order to keep costs low, discount brokerage houses will offer a limited number of services to their clientele.
The primary service provided by discount brokers is the buying and selling of securities. The commissions charged for these services will be lower than a full-service brokerage house. Discount brokers first became popular in the 1980s, and this business model was facilitated by technological advances such as the electronic trading of securities. Their appearance allowed less wealthy individuals to participate directly in the stock market.
Under certain conditions, some discount brokerage houses may even offer high-net-worth individuals the opportunity to trade securities without a commission. Discount brokers can offer lower commissions by eliminating most of the individualized services provided by full-service brokers. For example, discount brokers do not offer investment advice and research assistance or offer services such as tax and estate planning to their clientele.
The advent of the internet in the 1990s further solidified the long-term outlook for discount brokers since investors could now enter their buy and sell orders using online accounts.