Needless to say, Demat accounts have revolutionized online trading, making the entire activity of opening accounts to trading in different securities seamless. While most brokers offer you the opportunity to open a Demat account, whether it’s a Demat account for beginners or experienced investors, free of cost, there are charges levied for transactions made.
Brokerage charges may be complex for the most experienced investors, but these are crucial to understand as they play a huge role in your investment journey. They may affect your transactions and if you don’t anticipate their role, you may end up being the loser. However, first, you must grasp some key concepts about brokerage charges.
Brokerage Charges Explained
Opening a Demat account for beginners shouldn’t be followed by shocks related to brokerage charges. Before you start to trade in stocks, you have to have Demat and trading accounts. These facilitate the buying and selling of stock from stock exchanges. The broker or stock broking company through which you purchase and sell shares always charges fees for services rendered by it. This fee is referred to as the “brokerage”, or the brokerage charge.
The brokerage fees that are charged by brokers are not regulated or predetermined by any authority. Consequently, the brokerage charges/fees across various brokers are not consistent or uniformly established. Additionally, the regulator simply determines an upper limit on brokerage charges (2.5% of the investor’s transaction amount).
How Brokers Charge You
Before you learn how to begin trading, you must understand how different brokers charge you for your trading activity. Presently, there are four ways by which brokers charge brokerage fees in India. Check them out:
- Flat Fee
This is a flat rate that is charged on every trade conducted, irrespective of the amount traded or the traded value. Nonetheless, this is usually based on a specific condition that if the percentage of brokerage is less than the flat fee, the lower amount is charged to the investor.
- Brokerage Levied as a Percentage of the Value of Trades
Some brokers charge fees as a percentage of the entire value that is traded as brokerage fees. Essentially, the higher the traded value, the higher the charge for brokerage is going to be.
- Monthly Trading Plans
Some brokers have established monthly trading plans that let investors place an unlimited amount of trades in a single month whatever value may amount to. In return, brokers charge investors a monthly or annual fee for subscription.
- Zero or Nil Brokerage
A Demat account for beginners may be opened with a discount broker that does not charge brokerage for transactions that are categorised as delivery-based transactions.
Brokerage Levied For Different Types of Transactions
Typically, there are four different types of transactions that can be carried out while trading in the share market, and each has distinct brokerage fees:
1. Equity Delivery
In case investors hold shares above a single day after trades, these are termed delivery-based trades. Brokerage is levied on the buying and selling activity of securities and the value of the trade. However, several brokers may not charge investors for delivery-based trades.
2. Equity Intraday
The key to knowing how to begin trading, especially for intraday traders who close trades within a trading day, is to understand the charges for trading. If investors purchase a specific stock and sell it on the very same day, then the trade is counted as an intraday trade. Here, intraday brokerage is charged on both the purchase and sale transactions. Charges levied can be expressed as a percentage of the value of the transaction or as a flat fee; for instance, 0.1% of the turnover (Quantity of shares x price of the share) or ₹20, whichever is the lower of the two, is applicable per executed order.
3. Equity Futures
It is possible for investors to purchase stock futures (standardised contracts or agreements) and the capital that you earn or make a loss from in a futures transaction is deposited in or debited from your trading account on the very same day as the day of the trade. Here, the charges will be applicable in the same manner they do for equity intraday trades, i.e., represented as a percentage of the value of the transaction or a flat rate fee.
4. Equity Options
Equity options are trades that are a relevant portion of the derivative market, specifically in India. They act as a mechanism for investors to protect their positions and reduce potential risk. Generally, the brokerage fee on equity options is a fixed flat charge per lot or order. What’s more, the charges for brokerage vary from one broker to the other. Besides the brokerage that is charged, some additional charges are legally mandated and enforced by the concerned regulatory authority/exchange.
Successful Trading
A Demat account for beginners or one that is used by experienced traders and investors has certain charges applicable when investors engage in trading transactions. These must be understood by investors if they wish to make their trading potentially profitable.
