Question

1. Analyze the impact of COVID 19 to the Indonesia Capital Market. What is your strategy with this condition?
2. What are the difference between the full service brokers and discount brokers?

Answer 1

Indonesia's central bank, Bank Indonesia, has issued five policies to maintain monetary and financial stability during the global Covid-19 outbreak. Bank Indonesia Governor Perry Warjiyo said the bank would at first focus on intensifying its "triple intervention" on the financial market.

Perry said the bank would optimize intervention on the spot market, domestic non-delivery forward (DNDF) market and state bond (SBN) market to minimize volatile escalation of the rupiah's exchange rate.

"We're intensifying our triple intervention to stabilize the rupiah's exchange rate," Perry said at the Bank Indonesia headquarters in Jakarta on Monday.

Starting March 16, Perry said the bank would also lower the statutory reserve requirement (GWM) ratio on foreign exchange from 8 percent to 4 percent for conventional banks and Islamic banks.

Perry claimed this policy would increase foreign exchange liquidity by around $3.2 billion and strengthen the rupiah.

"We will also lower the rupiah's statutory reserve requirement by 50 basis points for banks that provide funding for export and import activities. This policy will be implemented for nine months starting April 1 in coordination with the government," he said.

According to Perry, Indonesian importers and exporters have been severly hampered by the Covid-19 outbreak, especially by disruptions in goods distribution and rising trading costs.

Full-Service Brokers

Full-service brokers or traditional brokers are brokers who provide advisory and trading facilities in stocks, commodities and currencies. These brokers charge commission in percentage terms on the total amount of trade clients execute. Full-service brokers operate out of many offices and branches across the country, which clients can visit in case of any query. India Infoline is one of the leading full-service brokers in India.

Discount Brokers

These brokers came into existence as a result of increased preference for Internet. Discount brokers just provide a trading platform to investors but no advisory. Discount brokers charge low brokerage. 5paisa.com is one of the most competitive discount brokers in India. It offers trading experience in equity, derivatives, currencies and commodities at Rs 10/per trade (lowest in the industry), irrespective of the invested amount. Over the last few years, discount brokers have established themselves in the market and are giving a neck-to-neck competition to full-service brokers who have been in the industry for quite a long time.

Factors	Full-Service Brokers	Discount Brokers
Service	Advisory for shares, mutual funds, bonds, currencies, commodities etc	Provides trading platform
Brokerage	Average daily brokerage is 0.3%-0.5% per trade	Charge as low as Rs 10/trade, irrespective of the order value
Presence	Operates through a number of branches	Usually do not have much branches and provide online services
Suitable For	An individual who seek hand-holding along with trading tools	An individual who is well versed with market and can carry out own research
Deciding Parameters	a) Brokerage & Other Charges b) Research Desk c) Customer Service d) Leverages Funding	a) Brokerage b) Cost of Transaction c) Customer Support d) Call & Trade Facility

Conclusion - The decision of choosing a brokerage house, be it a full-service or a discount broker, there is never a single perfect choice for every investor. Choosing between the two purely depends on personal needs and preferences. A new entrant in financial markets must consider the above mentioned parameters to take the best decision.