Discount or execution only broking is a simple dealing service. The broker does not offer any advice or portfolio management services.
Many brokers offer execution only services as one of several alternatives. The other commonly offered types of broking service are advisory (the investors makes the final decisions, but the broker offers advice) and discretionary (the broker manages the portfolio). There are also many stockbrokers who specialise in execution only services.
Execution only broking is the the cheapest way in which to buy and sell shares and other securities, hence the use of the term discount broking. Discount brokers also often a good way to buy funds.
The reason execution only services are cheaper is simple: they are cheaper to provide. The reason for this is that orders can be taken by call centre staff who are paid far less than stockbrokers and the time taken to process orders is little compared to the time required to assess a portfolio and a client's needs to provide advice or (especially) discretionary portfolio management. In addition, because the broker does not take any responsibility for the investment decisions there is no potential liability for bad decisions and far lower compliance costs.
Internet based execution only services cut costs further by feeding orders directly into automated systems. Although a broker may have to make significant investments to set up and maintain such systems, they can handle large volumes and the costs directly associated with each order are very low (A high proportion of the commission charged on each order is contribution.
This cost structure also means that the broker's commission on trades for execution only broking are usually fixed per order, rather than being a percentage of the cost of the order (usual for advisory services) or of the value of the portfolio (usual for discretionary broking). Depending on the broker, there may also be periodic charges, but these are also usually fairly low.
The low costs also mean, that unlike for many advisory and discretionary broking services, there is rarely a large (or any) minimum portfolio size for execution only broking services, which makes them far more accessible to small investors.