Low cost broker

Low cost broker

A low-cost brokerage can be considered to be a special case ofa discount brokerage which functions in a similar way to a
dividend reinvestment plan.

Low-cost brokers are generally less expensive for an investor who investsin small amounts (say, fixed dollar amounts) and who is not particular thatthe stock trade must happen in real time.

One way that could lower cost for these brokers is by executing orders only a few times a day by aggregatingorders from a large number of small investors into one or more
block trades which are made at certain specific timesduring the day. Such block trades are also sometimes referred to as
window trades. Window trades help lower costs in two ways:
* By matching buy and sell orders within the firm's order book the overall quantity of stock to be traded can be reduced thus reducing commissions.
* The broker can split the bid-ask spread with the investor when matching buy and sell orders - a win-win situation in most cases

Since investor money is pooled before stocks are bought or sold, it enablesinvestors to contribute small amounts of cash using which fractional sharesof specific stocks can be purchased. This is usually not possible with aregular stock broker.

Low-cost brokers also provide real-time trades, but these are usually (butnot necessarily) charged a higher commission.


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