Tools for Trading

Making a successful beginning in the stock market is far more important than just buying and selling shares and earning a profit.

Even after making an important decision as to where to invest your idle money, the more important question which arises is what would be the charges involved in it and how much will these charges shall impact or consume your earnings.

 

While many new investors have started to trade on stock market very few are aware about the various hidden charges which are charged by there brokers, in the core of this article we shall be paying attention on various types of charges,types of brokers and types of trading and various fixed and variable charges which can be avoided to gain more.

Coming up to the bases of trading, there are two types of trade ("Dealing in Equity segment")

• INTRADAY TRADING

• DELIVERY OF SHARES

Intraday trading:- Also known as "Day Trading" is defined as purchase and sale of  a security in a single trading day. For example:- you bought 10 share of idea-vodafone at 10.20 INR and sold it by the end of trade day at 10.45 INR (closing price), the share was bought and sold in the same day this is known as "INTRADAY TRADING". 

Delivery of shares:-basically in delivery of share you buy the shares and hold them for atleast more than 1 day. Lets suppose you bought share of idea-vodafone but you didn't sell them in the same day, in short unlike intraday trading you don't buy and sell them in the same day.

 (For investors planning to hold shares for longer duration).

Now coming up to types of stock brokers:-

There are basically two types of brokers such as,

• FULL SERVICE BROKERS

• DISCOUNT BROKERS

Full service brokers:- They offer customized support and interaction in facilitating trade, managing portfolio and financial planning and wealth management.

Basically a full service broker in simple words shall be the one to whom you can call and make a trade or even on their designated online platform and make trade, consult your queries with them and even take advice or even they shall buy and sell shares on your behalf on profitable trade if prior-permission is granted by the client.

Examples:- Mostly opening your demat account with banks which provide for demat/trading services is said to have account with "full service brokers"

Types of full service brokers

Discount brokers:-Discount brokers are the one who carry out buying and selling of shares on your behalf through online platforms and charge less commission rate in comparison to Full service brokers.

However Discount broker does not provide investment advice or performs analysis on a clients behalf unlike a Full service broker.

Examples:- Brokers such as "ZERODHA" etc are termed under discount brokers.

So now we know the types of trade we can perform and the types of brokers through whom we can trade/perform our transactions in shares.

Types of discount broker

Now whether to trade "Intra day" or take delivery, its totally up to the choice of investor, both the transaction have there own pros and cons.

So basically trading whether "Intraday or taking delivery" of shares both the type of trading can be performed by both the types of brokers.

Talking about the types of charges there are various types of charges involved in trading. To understand these charges we shall first try to understand their meaning and when are they basically levied.

• Brokerage:- Basically brokerage is a charge levied by your broker for performing or conducting your order whether buy or sell on your behalf and on your command. Basically trading in securities is free of GST (Goods and Service Tax) but brokerage charged by your broker is not free from GST as its service provided by the broker to you and is thus covered under GST and is considered as supply of service. Now the charge levied on brokerage is depending upon the type of broker through which you transact whether full service broker or Discount broker. In both the scenarios brokerage shall be levied on the type of service you are taking while performing your trade(means of trading),i.e., whether Intraday transaction or Delivery based transaction.

Talking about the charge on both types of transaction:-

                     

• Basically the brokerage charges in performing an Intraday trade (0.05% -0.3% of the trade) is comparatively more than performing Delivery based trade (0.1% - 0.6% of the trade). For beginners it is best to avoid Intraday trading as it involves various technical aspects and even the charge for performing the trade is high.
• Now, talking over the type of Brokers a Discount broker shall be more beneficial as the charges levied are very low and in the beginning starting by a Discount broker shall help you avoid unnecessary charges in trade.
• So, in simple words, trading through Full service broker charges more in comparison to Discount brokers.

• Securities transaction tax:- It is imposed on Equity and Derivatives transaction. It is originally imposed on the broker but is indirectly collected by the clients only. Now when you redeem your equity shares or else in simple words when you sell your Equity instruments"Securities Transaction Tax" is levied. The rate of charge levied is (0.025%) on sell value of shares. 

• Securities transaction charge:- Its a charge which is levied by the Exchange board for transactions of shares levied by National stock Exchange(NSE) and Bombay Stock Exchange(BSE).

• SEBI Turnover Charges:- These are charges which are levied by "Securities Exchange board of India" both on buy and sell of shares. The total charge is very nominal,i.e., 0.00015% of the volume of trade.

• Stamp duty:- Stamp duty is basically levied by the state government it varies depending on the state in which your broker resides (Registered office),i.e., from where your trade is transacted. The charge is levied suppose if you trade by your broker and your broker resides in Delhi (0.002%) then the charge levied on broker by the state shall be in directly be compensated through there clients.

• Depository participant charges:- Also know as the DP charges are basically charge for maintaining your demat account and to keep records of your holdings in dematerialize form. There are 2 corporation which are providing dematerialize service, they are CDSL & NDSL.

Let's Consider an Example,

We shall be considering two examples to cover both charges while you deal with Full Service Broker & Discount brokers.

Suppose you bought shares for Rs.19,000/- of Nestle and sold them at Rs.20,000/-, therefore the total turnover shall be-Rs.39,000/- by a Full service broker and performed an Intraday trade.

                        

Therefore, the brokerage shall be 0.01% of turnover(Rs.39,000/-) as its applicable on both buying and selling of shares.

Securities Transaction Tax shall be 0.025% of Rs.20,000/- as it is applicable on sale of securities.

Exchange Transaction Charge shall turn out to ₹1.2675 if we consider charge was levied by NSE i.e., 0.00325% on turnover(Rs.39,000/-).

Goods and Service Tax turns out to be 18% on "Brokerage" charged by the broker and "Exchange Transaction Charge", which turns out to be ₹0.93{18% on 5.17 (3.90+1.27)}.

SEBI Turnover Charge shall be ₹0.04 which is 0.0001% on both buying and selling of securities, that means on turnover (Rs.39,000/-).

Stamp Duty shall be ₹0.78 provided that the tax levied is 0.002% as per Delhi.

So in total the charge levied shall turn out to be in total ₹11.92 on the whole transaction.

Coming over to "Delivery Based Transaction",

we shall be discussing the charges levied by both the type of brokers (Full service brokers and Discount brokers).

Taking an example, suppose you bought MRF share at ₹20,000/- and sold them at ₹30,000/- (just a hypothetical example, as they actually don't trade at this price there last traded price was ₹63,900/-).

1.Full service brokers:-

As seen the brokerage charged by the broker turns out to be ₹100 i.e, {0.2% on ₹50,000/-} as it is applicable on both buy and sell side.

Securities transactions tax, will be ₹50 i.e,{0.1% on ₹50,000/-} applicable on both buy and sell side.

Exchange transaction charge is based on stock exchange:-

NSE = 0.00325%

BSE = 0.003%

In our case lets consider that transaction was through NSE therefore, ₹1.62/- i.e,{0.00325%on ₹50,000/-}.

Depository participant charges will turnout to be ₹15/- (just an example as it varies according to the volume of trade).

GST applicable shall be ₹20.99/- as it shall be applicable on Brokerage charged by the broker + Exchange transaction charge + DP charges which turns out to be {(₹100 + ₹1.62 + ₹15)*18%}.

SEBI turnover charges will be {0.0001% on ₹50,000/-}. Therefore ₹0.05.

And Stamp duty charges shall be {0.01%on ₹50,000/-} which turns out to be ₹5.

2.Discount brokers:-

Almost every charge shall be the same as that of full service broker but there will be reduction in cost/price of charges such as:-

As the brokerage charged by the broker will be "0" (zero) as already shown in the table.

Security transaction tax shall be same ₹50/- {0.1% on ₹50,000/-} since it is applicable on both buy and sell side of the transaction.

Exchange transaction charge shall also be the same which shall be :-

NSE = 0.00325%

BSE = 0.003%

Therefore, it shall be the same as in case of full service broker ₹1.62/-,

i.e,{0.00325% on ₹50,000/-}.

Depository participant charges shall also be the same ,i.e., ₹15/- as full service broker.

GST application shall change as GST is applicable on (Brokerage + Exchange transaction charge + DP charges). Since our Brokerage in present case of Discount broker is "0" (zero) therefore there shall be a slight change i.e, {18% on (₹0+₹1.62+ ₹15)} which turns out to be ₹2.72/- approximately.

SEBI turnover charges shall turn out to be same, which is ₹0.05{0.0001% on ₹50,000/-}.

Stamp duty, shall also be the same just assuming, therefore it turns out to ₹5 i.e,{0.01% on ₹50,000/-}.

Now in the next following table the comparative difference of charges charged by the brokers is shown:-

Now the question which arises is what are the types of charges which can be avoided while opening a demat account and which type of brokers should be considered for opening a demat account.

More over the charges mentioned above in the examples and tables are almost applicable in each and every transaction, therefore they can not be avoided. But there are few more charges which should be considered before choosing the right type of broker for yourself such as:-

1.Account Opening charge:- These days there are few brokers which can open your demat account on your behalf at ₹0 and there are few which can charge upto ₹700/- on just account opening. A separate account has to be opened for both equity and commodity trading. Its a one time charge therefore it should not affect you much but still it should be considered before opening demat account with your broker.

2.Account maintenance charge (AMC):- It is supposed to be paid annually and it mostly differs with the type of brokers and can range from ₹150/- to ₹500/-.

3.The 3rd type of charge is basically for full service brokers as they provide you a special facility of "Call and Trade" which is basically nothing but a facility in which you can call your broker and place your order for purchase and sell of security it come with a charge of ₹20 per order plus GST.

So its quite clear now that, most of the brokers which claim to charge Zero brokerage is not actually true but its just a way of attracting client/customers, therefore before opening a demat account various facts and charges should be known to the investors before they begin their journey in stock market.

"We hope our content was full of knowledge and beneficial for you happy reading and investing".