Your Trading Cost – Break up of brokerage you pay to your broker

Broker costs

There is no denying the fact that earning from stock market is an art, not just speculation, forecasting and analysis. Whether you are a retail investor or a big fund, one question you should ask yourself is “what is your trading cost”?. How much part of your earning are you passing on to your broker in the form of commissions because it really affects your “profit margin”.

If you are already familiar with stock market, there is a small homework for you. Check out the contract note you have received from your stock broker. Or else, if you plan to enter into stock markets and seeking for a broker, exercise your mind a little to know the net brokerage being charged by your broker and study the various commission components. The reason is simple; the amount you pay to your broker may make difference your winning or loosing in the trade. Confused??…It is a common mistake that novice traders execute trade assuming they are earning atleast meagre profit margin, but if all the components including brokerage, taxes, and stamp duty are accounted for, the profit margin comes out to be negative. Isn’t it strange? Yes, so we are here to understand the computation of the net trading amount you pay to your broker.

RATES OF BROKERAGE

There are many brokers charging different rates of brokerage. For example, ICICI Direct charging @.75% and HDFC charging @ .5% of trading amount. However the net trading cost is computed as below:

Trading cost = Brokerage + STT + Stamp duty + other charges

So in addition to brokerage, there are below costs accounted in net amount:

1. STT – Sale transaction tax is imposed on the sale/purchase of securities by retail/institutional investors and is charged on total turnover (cost of each share * no. of shares). For delivery of shares it is charged at .125%. For intraday selling of shares, it is charged @.025%. For buying, there is no tax for intra day trades. Currently government is under consideration to remove/reduce STT because since it was introduced in 2004, the cost of transaction of trades has drastically increased. This leads to loss in business as Indian markets are becoming less competitive compared to other emerging markets.
2. Stamp duty: Stamp duty is also charged on total turnover. For delivery of shares it is charged at .01% and for intra day it is charged at .002%.
3. Other charges: it includes below component:
a. Transaction charges: For trading of shares at NSE, it is charged @ 0.0035% while for BSE, it is charged @ 0.0034%.
b. SEBI turnover charges: For equity transaction, this remains NIL but for derivative transactions, it is charged @ 0.0002% of total turnover.

c. Service Tax: Service tax is charged on all the components

So net brokerage will be calculated as below:
Net brokerage = Brokerage + STT + Stamp duty + Other charges

So next time you trade, try to find out how much earning have you shared with your broker. Happy trading!!

Renuka Kinger

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25 Responses to “Your Trading Cost – Break up of brokerage you pay to your broker”

  1. Sonny A. Jacob says:

    Hi Renuka, is brokerage same for intra day and delivery? My broker charges 0.05 for intra and 0.5 for delivery, both on buy and sell.

  2. Renuka Kinger says:

    Hi Sonny,

    The brokerage on intra day trades is always lesser than delivery based trades. The intra day trades get squared-off on the same day while delivery based trades get settled in 2 days based on T+2 trade cycle and thats the reason delivery traded are charged with more brokerage.

  3. Shree says:

    hi Renuka,

    What are the charges for delivery based trade, while NRI account is linked for trading?

  4. Suresh Tailor says:

    Hi, Ranuka, Wishing you a Very Happy Diwali And properous New Year.
    Ranuka, Pls tell me, why different company charge different charges. what are the risk in the share intraday trading. which is better i.e. intraday or offline.
    pls send your reply on my email.
    thanks

  5. is brokers provide genuie service,if not what action may take aganist him.i am new in this field so pls guide me

  6. Santosh Kherala says:

    hello mam, I am a student of an MBA [Finance] i am very much interested in share market,but as my knowledge bounds me to enter in trading of shares,i wants to build a strong base and all the important aspects which are required to a normal person should have while trading and as well being a finance student wanted to get much knowledge in a practical way,so kindly suggest from where i begin and what are the procedure for trading in share market and from where should i begin????Hope to see your reply in my mail box,,,,,,
    Thank You mam

  7. prince says:

    Ranuka, Pls tell me, why different company charge different charges. what are the risk in the share intraday trading. which is better i.e. intraday or offline

  8. Jayesh says:

    what is STT?
    As per my knowleadge it should Securities Transaction Tax.
    Correct me if I am wrong!!

  9. charan says:

    let me know wich all states charging stmp charges in stock market &what %

  10. Hi ! Renuka, This is with reference to taxes charged by the Brokers in India. Wish to make a correction . The Stamp Duty is charged only on delivery of the security and not on Intraday trading as most of the brokers are charging. It is illegal . As per the legal defination Stamp duty is charged only registeration( or Transfer in buyer’s name ) of the securities. I am an Intraday Trader and not paying it either on Equities nor on Commodities. Plus , furthermore , would like to inform everybody that when trading in Forex Derivatives , there are no Transaction charges either. Only Brokerage plus 10.3% service tax. Most of the Brokers are cheating the public by collecting the Stamp Duties on intraday trading and Transaction charges on forex trading. Please demand that your broker stop collecting these in case all those of you are paying it.

  11. Krushna says:

    hi
    which is the best broking farm sugest

    without ADB and Low Brokarege

  12. ROHIT says:

    Hi…
    i have one question….suppose if i buy a share of cost Rs.50 and sell it for Rs.55…then will i have profit or loss ?…

    My broker said the if my share trading generates less than Rs.15 of brokage then I’ll be in loss…

    Please clear this…
    Thanx in advance…

  13. Ravi Kant says:

    I want to start with a meagre amount of about 5000 only.
    What references I should refer to know about Brokers and their updated Charges ?

  14. Renuka Kinger says:

    @Rohit: For smaller transactions with less profit margin you usually end up in losses after the brokerage is applied to overall trade amount. So your broker might be correct and you should consult with your broker on how much brokerage is he charging and calculate your net profit. It could be in negative as your apparant profit without brokerage is just Rs 5 (55-50).

  15. Lovson says:

    Is it compulsory to have a brokerage? And can u please send me the link in which i can open an account and start my trading? Thank you:)

  16. preeti says:

    Very True,generally brokers share all your profits..

  17. preeti says:

    And u know some time brokerage is more than the profits.This is rediculous.so ,while trading plz take care of ur fund……

  18. Dilip says:

    Hi Renuka,
    Very good information you have provided here regarding brokerage and taxes,but .Have you covered all the levies? Is there any education cess applicable ?

  19. Raghava says:

    Hi Renuka,

    The details you provided is highly appreciatable and extensively useful.

    Please suggest the best low rate offered and with best online quality broker in india.

    Best low rate offerred in the terms of (Net brokerage = Brokerage + STT + Stamp duty + Other charges).

    If possible (give these details for Indidainfoline atleast)

    Please describe, i will be verymuch greatful to you

    thanks

  20. vinay raghu says:

    i want to start trading , this is my 2nd innings because already did trading and lost some money on that time, so kindly give some tips how can i start trading this time

  21. mubarak says:

    mam if i purchased the share 50 rs then it is rice to 55 how much the broker commision

  22. mubarak says:

    need some websites to check the share rates

  23. Rousan_Ahmed says:

    Hi….
    I am new in share market. Please tell me how i can invest in the share market

  24. mahesh says:

    Hi Renuka,

    will the brokrige and ST, SC applicable while buying and selling, please claryfy.

  25. com says:

    This is an Awesome) post

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