Let us look at the intraday trading brokerage cost and also the overall intraday trading charges: both visible and hidden.
Visible charges you pay on intraday trading
- Brokerage is your service charge to the broker. In case of intraday cash market trading, the brokerage may vary from 5bps both ways to 10bps based on competition.
- Securities transaction tax (STT) is a major cost for intraday traders since 2004. STT is imposed at 0.025% of transaction value on the sell leg of the intraday trade.
- Effective July 01st 2017, all intraday transactions attract GST of 18% of the value of (brokerage plus transaction costs). Like STT, the GST is also collected from the trader by the broker and paid to government authorities.
- Intraday trading charges include transaction fees payable to the exchanges as well as SEBI turnover fees. NSE imposes transaction fees at 0.00325% of the transaction value, while BSE has a fixed charge. SEBI turnover fees are at Rs15 per Rs1cr of the transactions.
- Finally, stamp duty is payable at state government fixed rates; e.g., Maharashtra levies at 0.002% of the transaction value as stamp duty. All the above costs are mentioned in the contract note.
Invisible/hidden costs in intraday trading
- Hidden costs are not presented in the contract note, however, these are situational risks that actually add to intraday trading costs. These four costs are hard to quantify, but they exist.
- One of the hidden costs of trading intraday is high bid-ask spreads. Over a period of time, you end up paying a lot more and receiving a lot less.
- The time factor becomes a major cost for intraday trades since trades have be closed out on the same day.
- Volatility can be an invisible cost as market panic works against the trader. Normally, in volatility, there is a rush to cover long positions leading to stop loss triggers.
- Finally, there is a capital protection requirement, which may require the trader to terminate positions prematurely at a loss.