There was a time when brokers led a carefree life. In fact, brokers had a wonderful life as all of them were prospering and were successful. They were the supreme controllers of the exchanges and charged good fees from their investors. They earned high commissions and also received trading fee rebates from the exchange. All was well but not for the investors who had no choice but to pay heavy sum as brokerage. This kept going on until the concept of discount brokers and online brokers emerged and became popular. Capital markets experienced a revolution driven by technology and radical change in market structure. Electronic trading dramatically increased trading volumes and liquidity and slashed the cost of intermediation and broadened access to markets. Exchange demutualization led to a dilution of the status of exchange member. Access to liquidity was democratized. Liquidity became fragmented among exchanges, alternative trading platforms, lit and dark pools and so on. All this gave birth to a new league of discount and online brokers.
But there are many people who keep wondering why discount brokers are charging very less and cheap brokerage when compared to full service brokers. In order to understand this fact, it is vital to understand the difference between the two lots. And for this, one can take the example of an upmarket restaurant and a nearby eating joint. Both provide tasty food but in the upmarket restaurant, when you go, you have the waiter at your service. In your local eating joint, it is more of self service. Here, you are expected to eat and pay the bill and leave the table for the next customer. The price of this eatery is very less as compared to your upmarket, dine-in restaurant. So, the example says it all. The full-service brokers will make you feel like a king by giving you the premium services. But the discount brokers just focus on core services and rest is for you to manage.