In this article, we will talk about brokerage charges and take a deep dive into the jungle of fees charged to you during the trading of shares and normal delivery.
This article will also discuss the structure of brokerage charges and the types of brokerage fees. We will also touch on how brokerage charges are calculated and how you can minimize brokerage fees to get maximum profit.
What are Brokerage Charges?
Brokerage firms charge stock traders a percentage of their total equity delivery amount as brokerage fees. This brokerage charge can range from 0.05% for intraday and futures & options trading to 0.05% on normal equity delivery. Some brokers don’t take brokerage charges on equity delivery.
Many brokers boast the lowest brokerage charges to gain more traders on their platform. But there are always hidden fees that are not advertised, so be careful when choosing a broker solely on brokerage charges.
Different brokers charge different brokerage charges based on the type of brokerage account you have. There are mainly three types of brokerage accounts that you can open with a broker.
Cash Accounts:
These are normal cash accounts in which you deposit money to purchase stocks, and no extra fees are charged on this brokerage account except the annual account maintenance charge, which your stockbroker fixes.
These are accounts that enable you to borrow instant cash on margin to purchase shares above your current expenses. Extra charges are imposed on you when you have a margin brokerage account. You also have to have a certain amount of security deposit in the account to use the margins and leverage your money to gain maximum profits.
- Futures & Options Accounts:
These accounts are essential if you want to trade futures and options. A special agreement is needed due to the high risk associated with options trading. The highest amount of brokerage charges is charged in this type of account. So if you are a regular trader who deals with inequity and just wants to try out the futures and options markets, be careful of the charges because they can be very high depending on your stockbroker.
Types of Brokerage Charges
There are mainly five types of brokerage charges if we exclude the GST charges of 18% on brokerage and transaction charges.
These brokerage charges are,
- The stockbroker takes the brokerage charges.
- STT/SCC is security transaction charges.
- NSE/BSE transaction charges.
- SEBI charges
- Stamp duty
Brokerage Charges
These are the charges taken by stockbrokers in return for the service they offer the client. Each broker charges a different percentage according to their brokerage fee policy. These charges vary based on the type of transaction. For example, equity intraday charges are different from equity futures and options charges.
The brokerage firm account decides these charges to their business model. Brokers also take AMC, which are account maintenance charges and can range from 100 to 1000 rupees depending on the brokerage account you opened with the stockbroker. You should always go through the list of charges a broker charges before opening a brokerage account.
STT/CTT Charges
These are security transaction charges and commodities transaction charges, respectively. These are the charges levied by stock exchanges such as NSE and BSE on stock traders. These charges can even be more than brokerage fees themselves, and you should keep these charges in mind during buying and selling of equity.
Transaction Charges
Transaction charges are taken by exchanges such as NSE and MCX to use their infrastructure to trade shares and commodities. As compared to other charges, these charges are quite low.
For example, the NSE transaction charge per transaction is 0.00345% of the whole transaction volume on an equity delivery.
SEBI Charges
It is charged by SEBI, which is the Securities and Exchange Board of India, for regulating the stock markets and being an overlooking mediator. These charges are negligible compared to other charges, resulting in only 10 rupees/crore.
Stamp Duty
Stamp charges are the charges imposed by the Indian government. These charges come under the Stamp Act of 1899 and are charged for every transaction on the stock exchange.
The CDSL also charges DP charges of 13.5 rupees + GST. There are, of course, more charges, which are generally termed hidden charges. These charges are not universal, and brokers take these charges according to their policies. A few examples of these will be Payment Gateway charges, CMR changes, NRI brokerage charges, and many more.
However, Choice charges the lowest DP charge of Rs. 10, which is a minimum charge when compared to other Indian stock brokers.
Brokerage Charges are calculated for every trade you do based on the percentage of the total trading value of your order. These are calculated depending on the type of transaction you do on the stock exchange.
How the Broker’s Charge is Calculated for Intraday:
If your broker charges 0.01 % per intraday transaction, we take a share whose market price is 100 rupees. Then broker charge will be calculated by
Price of 1 share x
Number of shares x 0.01%
If you buy one share of this stock, then 0.1 rupees will be charged to you. Similarly, charges for delivery and options are calculated. However, flat charges on every Future & Option charge range between 10 – 50 rupees per transaction.
How to Minimise Brokerage Fees
Brokerage charges and brokerage fees are hard to mitigate and even harder to manage, but there are many ways to minimize brokerage charges. First, you must categorize your trading style and which transactions you usually do. Deciding on these factors will help you choose which strategies to apply to minimize brokerage fees.
Mainly to save brokerage fees, you can opt for discount brokers who have the lowest brokerage charges on all types of brokerage. The second most common way to save brokerage fees is to buy trading packs and plans that discount brokers generally offer. These brokerage plans save a lot of money if you make more trades every day.
Discount Brokers
Discount brokers are brokers who charge very low brokerage fees to attract traders to trade on their platforms. Many discount brokers have ZERO brokerage fees on equity delivery. Discount brokers also charge fewer brokerage fees for equity intraday futures and options.
Discount Brokers also allow fee structures such as: instead of a percentage of your whole trading volume, a fixed amount will be charged on orders. This is very beneficial because when trading with a very high volume of stocks, even 0.01% charges come out to be a large amount.
Discount brokers have gained more popularity than traditional brokers in recent years because of their ease of use. Instead of having a broker as a human being, you can have an application that does the buying and selling for you. This saves the extra price that you have to give to a person.
Brokerage plans
These are the special plans generally adopted by discount brokers. These plans have gained popularity because, in pro plans, up to 90% of the brokerage fees are reimbursed, which is a very big deal for traders who trade in high stock volumes. These plans can range from unlimited trading to zero brokerage fees on every transaction.
These turn out to be very beneficial when you are an intraday trader, and you opt for an unlimited trading plan; no brokerage fees are charged to you on the transaction. If you do many intraday transactions, it will save you a lot of money.
Most stockbrokers feature trading plans for every category of trader, from beginner packs to professional packs. Professional plans cost substantially more, but fixed charges will always be lower than the percentage charge on total volume if your trading volume is high.
Why Should You Choose Choice India as Your Broker?
Choice India is also a broker that provides low brokerage charges. Choice India is registered with BSE, NSE, MCX, and NCDEX, so it exposes you to both security and commodity markets.
The intraday charges and delivery charges are only 0.02% and 0.2%, which are among the lowest in the industry. Especially if you trade in futures, the brokerage charge is only 0.02%.
Brokerage charges for commodities are also 0.02% on futures and 50 rupees per lot in options.
Open a free Demat account with Choice India. It is instant and paperless. Choice India always provides free expert research reports to have a better understanding of the stock before investing.
Conclusion
Understanding brokerage charges is one of the fundamentals of money management as a stock trader. Still, many retail traders don’t know about brokerage charges and how they are calculated.
The ability to calculate your transaction fees will help you understand your cash flow better. It can also be helpful if the wrong percentage of brokerage fees is charged to you. And you will never know this if you don’t know the brokerage charges charged to you by your broker.