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How Brokerage is Calculated

How Brokerage is Calculated

In this article, we will talk about brokerage charges and understand how brokerage charges are calculated for different types of accounts and orders. The article will also discuss the structure of brokerage charges and how you can calculate your charges. We will also touch on useful tips to keep in mind.

What are Brokerage Charges?

First of all, we need to look at a brokerage fee. Brokerage firms collect a percentage of the total equity delivery amount from stock traders as a brokerage fee.

These brokerage fees can range from 0.05% for intraday and futures and options trading to 0.1% on normal equity delivery. Some brokers do not charge a brokerage charge on equity delivery. These brokers are generally known as discount brokers.

Different stockbrokers can have different brokerage charges depending on the brokerage account you open with the broker. There are primarily three types of brokerage accounts.

  • Cash Accounts: This is an account like a bank account in which you deposit cash. This very cash is used to buy stock, and no additional fee is charged on this brokerage account except the annual account maintenance charge as determined by your stockbroker.
  • Margin Accounts: These are accounts that enable you to borrow instant cash at a margin to leverage your position and buy stocks above your capital. You are charged extra brokerage charges when you have a margin brokerage account, and you must also have a certain amount of security deposit in your account.
  • Futures and Options Accounts: These accounts are essential if you want to trade with futures and options. Special agreements must be signed due to the high risk associated with trading options. This type of account carries the highest brokerage charges.

Types of Brokerage Charges

To calculate the brokerage charges, you need to understand all the brokerage charges. There are five types of brokerage charges, and these are

  1. Brokerage charges
  2. STT/SCC charges.
  3. NSE/BCE transaction charges.
  4. SEBI charges
  5. Stamp duty

Brokerage Charges

Stockbrokers charge you little fees in the form of brokerage in return for their service. Each broker charges a different percentage, and charges vary on the type of transaction. Charges for intraday charges are different from futures and options charges.

The brokerage firm decides these charges. Brokers also take AMC charges which are account maintenance charges and can range from 100 to 900 rupees depending on the brokerage account you opened with the broker. You should always check the broker charges before opening a brokerage account.

STT/CTT Charges

STT stands for Security Transaction charges, and CTT stands for commodities Transaction charges. These are the charges levied by Stock Exchanges such as NSE and MCX. When you order shares in large quantities, these charges turn out to be the highest.

Transaction Charges

Transaction Charges are taken by Exchanges such as NSE and MCX for using their infrastructure for trading transactions. NSE transaction charges 0.00345% per transaction on an equity delivery order.

SEBI Charges

Securities and Exchange Board of India for regulating the stock markets charges10 rupees/crore. This charge is negligible when compared to other charges.

Stamp Duty

The Indian Government takes stamp charges. These charges were introduced in the Stamp Act of 1899. It is also very less compared to other taxing coming out to 1500 rupees/ crore on delivery and 300 rupees/ crore.

Many other charges, such as DP charges of 13.5 rupees + GST, are also charged by the CDSL. There are more hidden charges which are buried in the fine print. A few examples of these will be Payment Gateway charges, CMR changes, and NRI brokerage charges.

And good old GST charges of 18% on Brokerage and Transaction Charges.

How are Brokerage Charges Calculated?

Broker charges are calculated for each trade you make based on a percentage of the total trading value of your order. This is calculated based on the transactions you make on the stock exchange.

How to calculate broker charges for intraday: If your broker charges 0.01% per intraday transaction if we take stock with a market value of Rs. 100 Will then be calculated by the broker charge

1 share price x number of shares x 0.01%

How to calculate broker charges for delivery: If you buy one share of similar stock prices at 100. And brokerage charge of 0.5% per transaction

1 share price x number of shares x 0.5%

Choice charges only 0.02% for Intra trade and 0.2% for delivery trades.

Similarly, the same formula can be used for Futures and Options, but there are flat charges between Rs 10 and Rs 50 per transaction on each future and options trade. These charges apply to both buy and sell orders.

From this formula, we can deduce that the bigger your trade volume, the more the brokerage charges will be.

Types of Brokers

There are generally three types of brokers in today's market. Namely Full-service brokers, Discount brokers, and Robo-advisers. Brokerage Charges and Brokerage Fees are different for different types of brokers.

Full-Service brokers

Full-service brokers provide a plethora of services to clients. They have the largest set of services tailored for each investor. Traders with large capital and holding always prefer Full-service brokers over any other type of broker. They generally have offices in major cities where you can walk in and meet the staff.

Full-service brokers also provide stock analysis and research reports to investors to understand a share better. They also provide financial advisory and generally have an in-house team of financial experts.

Choice India is also a Full-service broker, but the charges rival that of a discount broker.

Discount Brokers

Discount Brokers are brokers who charge very low brokerage fees to attract traders. Many Discount brokers have ZERO brokerage fees on equity delivery. Discount brokers don't offer the number of services that a Full-service broker does. They focus mainly on buying and selling stock and can have low commissions.

Discount Brokers don't have any service related to advisory and research, so you have to carry out your research before buying stocks.

Robo-advisers

As the name suggests, these are Robo-advisers, i.e. automated bots that provide insight based on computer algorithms. These are best for beginners as many companies offer advanced Robo-advisers who will give you recommendations based on your requirements.

These are even cheaper than discount brokers because they need very little human supervision. Robo-advisers are versatile, and if you have less time to spare, you can use them to do transactions in very few clicks.

Why Should You Choose Choice India?

Choice India offers low brokerage charges. Choice India is registered with BSE, NSE, MCX, and NCDEX, providing its client exposure to both security and commodity trading.

Choice India has a versatile brokerage calculator, and you can find your brokerage easily by entering particular stock and quantity of shares. A brokerage calculator is a time-saver, and you can calculate the charges even before deciding to execute the order.

Open a Free Demat account with Choice India. The process is paperless, and you will be up and running in 5 mins. Choice India, a Full-service broker, always provides free expert research reports and stock analysis to the account holders.

Useful Tips

Understanding brokerage charges is one of the fundamentals of a stock trader; you should know how brokerage charges are calculated. So you can calculate charges beforehand.

And being able to calculate brokerage fees, you can identify the wrong percentage of brokerage fees charged to you. If you don't know the brokerage charges, you will never be able to identify any discrepancy.

Also, keep in mind the Annual maintenance charge, so a broker doesn't lure you in with free brokerage but a high AMC charge. It is best practice to understand all the charges at every transaction level to become a better trader and investor.

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