Are you a beginner in stock trading and want to place your first order? Then, you must know every detail about stockbrokers. Picking the right stockbroker can save you money in the long run.
Since the number of registered stockbrokers in the equity segment has increased to 4894, beginners often get confused about which one is better for them.
This blog clears your confusion by providing an easy guide for choosing the right stockbroker by explaining how they work.
What is a Stockbroker and How Does It Work?
A stock exchange is a platform where stocks are traded, with the NSE and BSE being the two largest in India. These exchanges use intermediaries, known as stockbrokers, to facilitate daily transactions. These brokers charge a fee called a brokerage fee to provide necessary services. It allows investors to access and purchase or sell stocks at various locations.
How to Calculate Brokerage Charges?
If you want to understand how to calculate brokerage, you have to go through the procedure below:
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Find the Trading Type
Depending on the type of trade, brokerages will determine and apply a specific fee. You may be trading intraday or delivery.
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Brokerage Rate
Your brokerage charges are determined by your broker using a specific pricing structure. You have to pay a certain percentage as a fee if it is a traditional broker. Discount brokers use a flat fee model for their charges. For instance, in trade execution, they may charge INR 40.
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Trading Volume and Other Costs
High trading volume may result in higher fees from your broker, particularly if they use a percentage-based pricing structure. However, some brokers offer a discount in exchange for a larger transaction volume. To determine the actual cost, they additionally include other fees like the STT, GST, etc.
The basic formula to calculate the brokerage fees in the share market is:
Brokerage fees = Number of traded shares x cost of per share x brokerage percentage
For instance, if you bought or sold 100 shares of company X with INR 100, and the brokerage charges 0.04% as commission per share, then your brokerage fees for the transaction will be:
100 x 100 x 0.04% = INR 4
Differences Between Traditional Brokers and Discount Brokers
There are 2 types of brokers in India: traditional brokers and discount brokers. Before choosing, you must understand the comparison of traditional broker vs discount broker:
|
Parameters |
Traditional Brokers |
Discount Brokers |
|
Range of Services |
Traditional brokers offer a wide range of services, including investment advice, trading, tax and retirement planning. |
Discount brokers only focus on trade execution and provide basic investment tools. |
|
Fees |
Traditional brokers levy charges as a certain percentage of the total trade volume. |
A discount broker has a flat-fee structure. It is a comparatively affordable option. |
|
Market Research |
Traditional brokers invest a lot in their market research and provide investors the market reports and research papers. |
Discount brokers do not provide much research analysis and tools to investors. |
|
Suitability |
You must choose traditional brokers if you have enough budget to bear additional costs. |
Discount brokers are suitable for investors with a limited budget. |
How to Choose the Right Stockbroker?
You can choose the right stockbroker as per your investment choices and decisions. Follow the tips below to choose the right stockbroker for yourself:
- Always check the brokerage charges of a stockbroker before choosing it. Some of them can charge as high as INR 1,500 for account opening and maintenance, while others provide free accounts.
- Ensure your chosen stockbroker has an efficient research team. This can assist you in making well-informed decisions throughout your investing journey.
- You must choose a stockbroker who offers a wide range of products and services like stocks, commodities, mutual funds, and loan products.
- Finally, choose a stockbroker which is regulated by the Securities and Exchange Board of India (SEBI) to prevent fraud.
What are Sub-Brokers and How Much Do They Earn?
You can also choose a sub-broker if you cannot find any traditional stockbroker in your area. Sub-brokers are chosen by stockbrokers and get a commission for each transaction their clients complete. This commission serves as the main source of revenue. If you ask how much sub-broker earns, it depends on the brokerage fee of each broker.
For instance, if a broker charges 0.5% on an order of INR 1,000, which is INR 100, the proportion of this transaction will determine how much the sub-broker earns. It can earn INR 50 if the broker pays 50% as commission.
Final Thought
The traditional brokers and discount brokers have numerous distinctions in the range of services, fees, and market research. Before choosing a stockbroker, you must analyse the brokerage charges and their research efficiency. Additionally, do not forget to ensure the broker has enough reputation in the market.
