How Stock Brokers Calculate Brokerage When You Trade?

The entirety of the brokerage that eventually affects you as a trader or investor is the type of broker selected. There are two types of brokers – Full Service Broker and Discount Broker.

It’s important to understand the difference between the two types of brokers. The below table will serve the purpose,

Full-service Broker

Brokerage

Typically charges a percentage of trade value as brokerage. May offer lower percentages to high volume traders.

Brokerage Charges

0.25% - 0.75% (Approximate)

Services

Broking Services, Research, Wealth Management, PMS, Depository services etc.

Suitable for

Traders and Investors who’d like specialized research or guidance regarding investments.

Physical Presence

Anytime and anywhere motto. Available in multiple locations.

Customer Service

Email/Call/Branch Servicing/Doorstep servicing etc. Also Offer dedicated RMs for clients.

Examples

Choice Broking, Motilal Oswal, ICICI Direct, Kotak securities etc.

Research

In-House research

Discount Broker

Brokerage

Discount as in Flat fee for a trade as Brokerage.

Brokerage Charges

Generally ₹10- ₹20 per order.

Services

Trading Platform

Suitable for

Good for traders who use their own research for trading.

Physical Presence

Zero branch offices.

Customer Service

Online services email/chat/phone. No RM services.

Examples

Zerodha, Upstox etc.

Research

Tie-ups with 3rd party research providers like Morningstar etc.

Now let’s see how brokers calculate brokerage of their clients,

Brokerage Calculation of Full – Service Broker

Brokerage is calculated according to the trade type i.e. Intraday or Delivery.

Intraday - Buying and selling shares on the same day is Intraday strategy.

For full-service stock brokers, the range of intraday brokerage range between 0.01% to 0.05% and the calculation is as below,

Eg:- TCS

Share Price – Rs.2029.90 (as of 15th June, 2020)

Quantity – 100

Brokerage – 0.02%

Share Price x Quantity x 0.02% i.e. 2029.90 x 100 = 202,990 (Buy) + 202,990 (Sell) 405,980 (total Value) * 0.02% = Rs. 81.19

Intraday Options – These are charged on per lot basis

Delivery – If you decide to hold onto your stocks

Typically, delivery charges vary from 0.2% to 0.75% of the trading volume.

Continuing the same example used above,

405,980 x 0.2% = Rs 811.96

Brokerage Calculation of Discount Broker

Discount brokers have a flat rate let’s say Rs. 10 to Rs.20 per trade. So for the above Intraday trade,

Total Amount - Rs. 405,980

Brokerage – Rs.20 / Per trade irrespective of volume.

Total Brokerage – Rs.40

Other Applicable Charges to Total Cost?

Transaction charges: Exchange Turnover fee is charged by the stock exchanges like, NSE, BSE etc.

Securities Transaction Charges: Charges for value of securities being traded.

Commodity Transaction Charges: This tax is applicable on commodity derivatives.

Stamp Duty: This is charged by the state government for conducting securities transactions.

GST: Government tax, this is 18% of the transaction charges and brokerage cost.

SEBI Turnover Fee: SEBI fees for trading across all securities types, except debt securities.

To sum it up,

1. Get your final negotiated brokerage charges documented and emailed from official account
2. Brokerage varies across segments, check the segments you are most likely to be trading or investing in
3. Apart from brokerage, you are required to pay Service Tax, Turnover charges, Stamp duty, STT, Capital Gain Tax

Which Broker should you go for?

Well, it depends on your trading behaviour and answers to the below questions,

• Are you a beginner, medium or heavy trader?
• What is your trading capital?
• What is your trading frequency?

We hope the above information might help you to understand how stock brokers calculate brokerage. Use the differences between the Full-service and Discount brokers to finalize the broker you are going to work with. Ultimately, it’s not just about the brokerage charges but the whole package.