How do stockbrokers calculate brokerage fees?
Have you ever wondered how a stockbroker calculates their brokerage fees? Despite the brokerage rates announced at the start, do you still have apprehensions about the fees charged on your transactions? We will consider how these loads are calculated.
A stockbroker provides you with a facility of trading in the stock market and you pay the broker a commission for these services. This commission, usually charged as a percentage of the traded value, is called the brokerage.
Brokerage fees are specified in the contract and are a fixed percentage that the broker will deduct from your portfolio. Let’s say, for example, that you bought 1000 shares of TCS at र500 each. Subsequently, you sold the shared ones four days later to र550 each. In this case, the value of the transaction would be:
र(1000×500) + र(1000×550) = र(5,00,000 + 5,50,000) = र 10,50,000
As this is a delivery trade, consider 0.4% as standard brokerage. So, to calculate your total brokerage fees, you can arrive at by multiplying the percentage by your total traded value. Who will be:
र 10,50,000 x 0.4% = र 4,200
Therefore, in this particular buy and sell transaction of 1000 TCS shares, the total brokerage charged to you is र 4,200.
If your traded value is smaller, say, for example, you buy 10 shares of Aptech at र10 each and sell them a few days later at र12. In this case, your total traded value would be:
र(10×10) + र(10×12) = र(100 + 120) = र220
By calculating 0.4% of 220, you will arrive at a figure of र0.88. Full-service stockbrokers, however, maintain the lowest brokerage fee limit. It usually ranged between र20 and र30. This means that regardless of your traded value, brokerage fees cannot be lower than the lower limit.
Stock broker executives will discuss brokerage fees as 10 paise or 50 paise. However, this does not mean that you will pay this amount as a brokerage. Industry terminology indicates that you will be charged 0.10% or 0.50%, respectively.
There are simple brokerage calculators available online to help you do the math seamlessly. You can also negotiate brokerage fees with the management of the brokerage firm. They may not be open about it, but brokerage rates can always be negotiated. You have a better chance of trading if your initial capital is high or if you are willing to commit to high turnover.
You also have discount brokers, who charge a fixed brokerage fee regardless of the traded value. A discount broker like 5Paisa will charge you र10 as brokerage fee per executed order. Your market value could be र1000, र10,000 or even र10,000,000; the brokerage charged would be र10. Similarly, other discount brokers will charge your र10 to र20, regardless of your trading volume.
There are even a few discount brokers that offer fixed monthly and annual plans. Such plans offer you unlimited trades for the subscribed period and are well suited for large traders.
Brokerages like Finvasia charge clients a periodic fee (monthly/annually) depending on the trading platform they choose. This gives their clients the freedom to trade in any segment, as many times as they want and up to any value.
In addition to brokerage fees, you must also pay the following fees:
This is 15% brokerage fee and can be broken down into 14% Service Tax, 0.50% Swachh Bharat Tax and 0.50% Krish Kalyan Tax.
The stamp duty charged varies from state to state. In Maharashtra, it is 0.01% of the transaction value for equity delivery transactions.
SEBI Turnover Commissions
SEBI charges this commission on all transactions that take place on the stock market.
Tax on securities transactions
This tax depends on the business segment. In the case of equity delivery, 0.1% of your traded value will be adjusted as STT, which will be 0.05% in the case of options.
The above information will help you understand the brokerage calculation per stock brokers so you can make an informed decision about choosing your broker.