A broker or a brokerage company serves as an intermediary between the investor and the stock market. Connecting investors with the stock market, brokers help in opening a trading and demat account necessary for conducting stock market transactions. Such brokers offer an extensive range of services and charge a brokerage fee for such services. Varying according to the type and number of services, a brokerage charge is a small compulsory fee that Investors have to pay. Though small, such charges can impact the returns of an investor. Complete knowledge of the brokerage charges can help first-time and experienced investors make information decisions. Following is a guide on brokerage charges that can help investors immensely:
- What is a brokerage charge?
Brokers offer various services to investors ranging from opening a trading account to delivering access to real time market information for sound decision-making. They help traders and investors who wish to open a trading account necessary for buying and selling securities listed on the stock market. They offer market insights, serve as an intermediary between the stock market and investors, and deliver various essential services. For providing all the services, they charge a fee from the investors known as brokerage fee. This fee can vary according to the type of broker and its services.
- Types of brokerages:
- Flat charge:
Brokers can charge a flat fee irrespective of the trade values. Investors have to pay the same amount every time they buy and sell securities without taking into consideration the value of trade.
- Percentage of traded value:
Brokers can even charge a small percentage of the trade value i.e. the total transaction value when buying or selling securities. For example, a brokerage fee of 0.05% can be charged on the buy value of ₹1,00,000 which is ₹50.
- Combination of flat and percentage-based fees:
Brokers may even combine both flat and percentage-based fees. For example, flat brokerage fees of ₹20 or 0.05% of the traded value whichever is lower.
- Intraday and delivery-based charges
Brokers may even charge different fees for intraday and delivery-based transactions. An intraday charge however will be lower as compared to the charge on delivery transactions.
- Tips to reduce the brokerage fee
Investors through careful planning, analysis, and decision making can save themselves from paying high brokerage fees. The following tips can be followed to reduce the brokerage fee liability:
- Selection of the right broker:
Selection of the right broker through analysis of their services and brokerage fee is essential. Careful selection can help Investors reduce their financial burden to a great extent and even get better returns. For example, passive traders and investors who do not indulge in active trading can opt for the services of a discount broker. With limited service, such brokers even charge low brokerage fees as compared to full-time brokers.
- Careful analysis of stock market trades and transactions:
Investors carefully analyse their stock market transactions and the traded value to reduce the payable brokerage fee. Frequent trades of high value can attract a high brokerage fee that investors can reduce through passive investing or opting for fewer trades.
- Opting for an online platform:
Users must open free demat account that attracts a low brokerage fee. With convenience and low brokerage fees, an online platform can deliver extensive benefits as compared to real brokers.
First-time investors unaware of the brokerage charges must follow the above-mentioned tips and opt for careful analysis of brokers, their services, and charges. Through proper research, and selection of the right brokerage plan, investors can minimize the value of payable charges to a great extent.