How Brokerage Charges are Calculated in the Stock Market?
While trading in the stock market, knowing about the various charges, including brokerage charges, and how these charges are respectively calculated is mandatory. Once you open a Demat Account and a Trading Account, you are all set to trade in stock markets. But, remember to trade through a broker. With the advent of the internet, you can use online brokerage platforms.
Who is a Broker?
A broker is a financial intermediary, middleman or agent through which you can trade in stock markets. The services of a broker facilitate trading in different financial instruments, like stocks, futures and derivatives. There are two types of brokers in stock markets:
- Full-service broker: These stockbrokers provide brokerage services along with features like market reports and advisory, customer service and research.
- Discount brokers: These brokers provide reduced broking charges known as fixed service. They, however, do not provide any other services.
What are the Brokerage Charges I Will be Subjected To?
The fee that brokers charge for providing their services is known as brokerage charges which are not uniform and often vary from every broker. It also depends on the type of transactions you make. Often, the brokerage slabs provided by stockbrokers are dynamic, and regular clients are benefited from lower brokerage rates.
What are the Brokerage Plans Available in India?
The brokerage plans depend on the type of broker. Discount brokers offer two types of plans:
- Monthly unlimited trading plan: Here, you have to pay a fixed monthly charge to trade in stocks and securities.
- Flat per trade brokerage: Here, irrespective of the volume of trading, you are charged a flat rate.
How are Brokerage Charges Calculated for Trading?
The brokerage is calculated on the percentage of the total cost of shares either purchased or sold. Here, you are charged for intraday trading and delivery. Let’s understand both concepts:
Intraday trading: When a trader buys and sells shares within the same trading day, they are employing the intraday trading strategy:
- Buying and selling shares before the end of a day’s trading session is called intraday trading.Depending upon the stockbroker, intraday trading charges can range from 0.01% to 0.05% of the volume/amount transacted.
- The formula for calculating this charge is to multiply the market price of shares into many shares, again multiplied by the percentage of intraday charges.
Delivery: These are the charges when you decide to hold your stocks.
- You can hold your stocks in sync with the market movements for as long as you want. Delivery charges can vary between 0.2% and 0.75% of the trading volume.
- The formula for this charge again is to multiply the delivery charges into the number of shares and their market price.
What are the other Charges that Comprise the Net Trading Cost?
Along with brokerage charges, other charges too are paid depending on the type of financial instrument which then constitutes your total trading cost. These are:
- Transaction charges: Also known as Exchange Turnover fees, these are charged by the stock exchanges, like National Stock Exchange (NSE), Bombay Stock Exchange (BSE) etc.
- Securities Transaction Charges: These are charged on the value of securities being traded.
- Commodity Transaction Charges: This tax applies to commodity derivatives.
- Stamp Duty: This is charged by the state government for conducting securities transactions.
- GST: A union government tax, this is 18% of the transaction charges and brokerage cost.
- SEBI Turnover Fee: This is charged by the stock market regulator, SEBI, for trading across all securities types, except debt securities.
Thus, brokerage charges are calculated by stockbrokers as a percentage of the trading volume. To trade in stock markets, remember to select a trusted financial partner, which can provide you with features like a free online Demat Account and trading account. You should always look for benefits, like brokerage cashback and discounts on the Annual Maintenance Charges (AMC) of your online Demat Account. You must always select a financial partner, which offers different equity brokerage plans, like Variable Brokerage Plan (VBP) and Value Added Subscription Plan (VAS).