How Brokerage Charges are Calculated?
Trading in the Indian stock market requires several charges which differ from the buying price of stocks and securities. One of the most important is the brokerage charges or a brokerage fee that the trader pays to the stockbroker or brokerage firm. The brokerage charges in the stock market are the fee that a stockbroker receives after facilitating a trade successfully on behalf of their clients.
Usually, it’s a certain percentage of the total trade value. The stockbrokers generally levy this brokerage fee over and above the actual price of the trade and deduct it from the trader’s portfolio once the trading is completed.
Types of Brokerage Charges in India
Simply put, the fees your stockbroker will charge you for offering their trading services are called the brokerage prices. This is not one-size-fits-all and will vary from one stock broker to another. It will also depend upon the kind of trading transactions you would make. Generally, the brokerage charge slab that the brokers provide is dynamic, and investors can benefit from lower brokerage charges.
In India, the brokerage charges depend on the stockbroker you choose for your trading service. The discount stockbrokers will offer two kinds of plans in India:
- Monthly trading plan: This is an unlimited plan where you will need to pay a fixed charge monthly to trade in securities, bonds, and stocks.
- Flat fee brokerage: In this plan, you will have to pay a flat fee to the stockbroker irrespective of the kind of trading services you choose.
How Brokerage Charges Calculated in India?
The brokerage fee is usually calculated on an agreed percentage of the total price of sold or purchased stocks. In India, you will be charged for intraday trading and delivery. Let’s check out both the concepts in detail below:
- Intraday Trading
The intraday trading strategy is when the trader buys and sells stocks within the same day of trading. So, for example, if you buy some shares and sell them off before the end of the day’s trading session, it will treated as intraday trading.
Also Read: Intraday Trading Strategies for Day Traders
However, during intraday trading, the selling position of the shares should be in sync with the total number of shares you have bought. Therefore, the intraday trading charges will depend upon the stockbroker. Usually, it ranges from 0.01% to 0.05% of the total amount transacted.
The right way to calculate this particular brokerage charge is to multiply the market price of the stocks into the number of stocks, further multiplied by the approved percentage of intraday costs.
- Delivery Charges
These charges are levied when you, as an investor, decide upon holding your stocks in the stock exchange. You can hold them along with the stock market movements for as long as you wish to. Usually, delivery charges will vary from 0.2% and 0.75% of the total trading volume. Again, the formula for calculating the delivery charges is simple. You will need to multiply the stock delivery charges into the total number of stocks/shares and their market value.
Understanding How Brokerage Charges Are Calculated
To make it easier for you to understand, let’s simplify the calculation of brokerage charges with an example:
Suppose your stockbroker charges a flat fee of 0.05% on intraday trading.
So, the brokerage charge would be 0.05% of your total turnover. This means if you buy stocks of ₹100 and the brokerage charge is 0.05% of ₹100, which is ₹0.05. So, the brokerage cost on the intraday trading is ₹0.05 + ₹0.05, which is ₹0.10 for buying and selling stocks.
An online brokerage calculator can calculate the brokerage charge. This will be based on the total cost of the stocks at a percentage that both parties have decided. So, the simple formula to calculate brokerage charges is:
When the charge is 0.05% for intraday trading and 0.75% for delivery trading, the formulae for calculating the brokerage charges would be –
- Intraday = Stock Market price of 1 share * total number of shares * 0.05%
- Delivery = Stock Market price of 1 share * total number of shares * 0.75%
Now, as you are well aware of the concept of brokerage charges in the stock market, it will be easier for you to calculate the same with an online brokerage fee calculator. Also, remember that it will vastly depend upon the stockbroker or the brokerage firm you will choose to trade in the Indian stock markets. Hence, it’s prudent to choose a trusted financial partner who will charge you an affordable brokerage fee and make trading safe and successful for you in the long run.
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Frequently Asked Questions
It is the Goods and Services Tax, which is 18% of the total transaction charges and brokerage fee.
Stockbrokers can be distinguished into two types as per the brokerage services they offer -
- Full-service brokers
- Discount brokers
Stockbrokers are the intermediaries or middlemen who help an investor buy and sell stocks, shares, futures, options, securities, and other financial instruments in the stock market.
This is the simplest formula to calculate the net trading cost –
Brokerage + Securities Transaction Tax + Stamp Duty + Other Fees = Trading Fees
This is also termed the Exchange Turnover fee. The transaction charges are levied by the stock exchanges, like National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.
This is a fee charged by the state government for conducting stock and security transactions in the stock markets.
Brokerage charges apply to traders or investors in the stock market who wish to buy or sell stocks/shares.