To start with, what does an online discount broker mean? They are brokers who offer the service of purchasing or selling stocks on behalf of the investors at a discounted rate compared to a full service broker without offering any advice on investments.
There was a time when the stock market was controlled by a few full service brokers and using their services was only possible for the well heeled. In 1975, the discount brokers took over the market. The fee they charged was very low, but the purpose of investing in stocks was served, thus bringing the stock market within the reach of the average Joe.
Online discount brokers are order takers – they follow the instructions of the investors with regard to where to invest and how much. They do not offer any advice with regard to when to buy and sell or which stock is suitable for an investor’s budget.
Some online discount brokers may however assist investors with research reports and newsletters, but their services fall short of full service consulting. The Internet has further extended the simplicity of the task for investors and discount brokers. Hence, we see a proliferation of online discount brokers in the market.