Understanding brokerage terminology and what 1 paisa brokerage plan may actually mean and cost you
Brokerage is the amount you pay to your broker who provides an interface to execute trade (Buy / Sell) in an exchange. Brokerage is represented in paise and not in rupees to make us feel very low amount is being charged.
Normally brokerage plans are termed as 5 Paise / 50 Paise. I have explained it calculating brokerage.
It means that when you do a transaction (Buy or Sell) of 100 Rs on delivery based buying or in simple terms if you buy shares with a plan not to sell the same day you pay 50 paise as brokerage. On top of these 50 paise, there will be other tax and charges which roughly make these 50 paise close to 75 paise.
But if you square of the trade on the same day you will not be paying 50 paise but it will be 5 paise instead.
The same brokerage also applies when you sell the shares. i.e. of 100 Rs share price you pay 50 paise as brokerage.
So in brokerage plan terminology 5 paise / 50 paise means 5 paise brokerage for intraday and 50 paise brokerage for delivery of shares. Remember if you switch exchanges for arbitrage when trading the same day it may not be considered intraday trading brokerage wise.
What does 1 paisa brokerage actually means?
Let us understand the 1 paisa brokerage with an example. We purchased 10 shares of a company for 1000 Rs and sold it at 1020 Rs the same day.Total turn over for our transaction is 1000 x 10 + 1020 x 10 = 20200.Brokerage for the transaction is 1 paise per 100 Rs and so for 20200 it will be Rs 2.02.Ideally your profit should have been 200 Rs less brokerage of 2.02 which should have been 197.98 Rs but as there are other charges like STT, Transaction charges service tax and SEBI charges the profit would be close to 190 Rs. There are certain points to note which many brokers deploy to take more brokerage from your trades
- Minimum brokerage per trade – May have a minimum brokerage of certain amount brokerage per trade.
- Advance brokerage plans – May have a monthly or yearly brokerage plan for a very low brokerage level.
- Shares not transferred – Some brokers do not transfer shares to your account and keep them in their company account where you miss on the dividends company pay. (Haven’t had any such experience but read the horror stories in traderji forum)
Should you opt for low brokerage options?
Always if you can get a deal from your current broker to reduce your brokerage (threatening to close the account or other such tricks) but not otherwise because I don’t see a reason to be moving your portfolio of investment that you don’t trade often to move to low brokerage brokers. Better to just have a second trading account with low brokerage brokers.