How Stock Brokers Calculate Brokerage When You Trade?
Check out the different types of charges and how Stock Brokers calculate it at the time trading.
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,
Typically charges a percentage of trade value as brokerage. May offer lower percentages to high volume traders.
0.25% - 0.75% (Approximate)
Broking Services, Research, Wealth Management, PMS, Depository services etc.
Traders and Investors who’d like specialized research or guidance regarding investments.
Anytime and anywhere motto. Available in multiple locations.
Email/Call/Branch Servicing/Doorstep servicing etc. Also Offer dedicated RMs for clients.
Choice Broking, Motilal Oswal, ICICI Direct, Kotak securities etc.
Discount as in Flat fee for a trade as Brokerage.
Generally ₹10- ₹20 per order.
Good for traders who use their own research for trading.
Zero branch offices.
Online services email/chat/phone. No RM services.
Zerodha, Upstox etc.
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,
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,
- Get your final negotiated brokerage charges documented and emailed from official account
- Brokerage varies across segments, check the segments you are most likely to be trading or investing in
- 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.