How to Calculate Brokerage in Share Market
When you buy or sell shares in the share market online, there are many costs that you need to be aware of, like brokerage, STT, stamp duty, GST, etc. While most of these charges are the same across brokers since they are determined by the regulator or the government, the brokerage is one cost that can vary. In this article, we will talk about brokerage in the share market and help you calculate it, and offer an online stock trading brokerage calculator for your ready use.
Brokers and their types
A stockbroker is an agent mandate by SEBI who helps us in buying and selling shares on the stock exchange. This service is made available to investors for a fee called brokerage. There are two types of brokers in the share market:
- Full-Service Brokers – Think of them as the traditional brokers that existed from the time stock markets were formed. They would take your orders and execute them in the market, conduct stock research, and offer investment advice. Some full-service brokers also offered banking assistance to investors. The brokerage charged by them was higher since they offered a basket of services.
- Discount Brokers – These are stockbrokers that only offer trading services to investors. They don’t conduct research or offer investment advice. This allows them to charge a much lower brokerage than a full-service broker. Most discount brokers charge a flat fee per trade. In fact, many discount brokers offer zero brokerage delivery trades to investors.
Since stockbrokers cater to a wide range of investors, they create brokerage plans to allow investors to choose one based on their investing style. These plans can be broadly classified into three types:
- Percentage of the trading amount – As per this plan, when you place an order (intraday or delivery), the broker charges a fee that is a small percentage of the amount of the trade. So, if the brokerage charged is 0.05% and the trade is for Rs.10,000, then the brokerage will be Rs. 5.
- Flat fee per trade – Most brokers charge a flat fee as opposed to a percentage-based fee. This is usually per trade and specified if it is applicable for intraday or delivery trades or both.
- Monthly trading plan – In this plan, a broker allows you to place unlimited trades in a month for a fixed fee. There can be certain restrictions imposed by the broker for offering these plans. Ensure that you understand the plan thoroughly before buying.
Also Read: Zero Brokerage Unlimited Trading Plans
Online Stock Trading Brokerage Calculator
Before you use the stock brokerage calculator, make a note of the type of brokerage plan you have selected while opening the trading account. It is important to understand how the brokerage is structured so that you can calculate accurately. Is your broker offering zero brokerage on delivery orders? How does the broker charge you for intraday orders placed on the share market online?
Once you understand the type of plan you have signed up for, separate the intraday and delivery trades. This will help you calculate brokerage easily since the brokerage for these orders is usually different.
Once the two are separate, start calculating brokerage for each of them. For all orders where the broker offers zero brokerage, remove them from the list of orders that need to be considered for brokerage calculation. Here is a quick online stock trading brokerage calculator for different types of brokerage plans:
- Percentage-based plan - Brokerage = Market Price of one share x total number of shares x brokerage rate
- Flat Fee Plan - Brokerage = Fee per trade x number of trades If the flat fee for intraday and delivery orders is different, then calculate them differently.
- Monthly Plan - No need to worry about the brokerage calculation.
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Difference between BSE and NSE?
The stock market in India is a highly structured and regulated place. With SEBI acting as a regulator, there are various intermediaries like stock exchanges, depositories, depository participants, clearing corporations, etc., that work in tandem to offer a safe trading place for securities.
What is NSE?
There are around 9 stock exchanges in India offering a secure trading platform to investors. These include the National Stock Exchange (NSE India), Bombay Stock Exchange (BSE), Calcutta Stock Exchange (CSE), India International Exchange (India INX), Multi Commodity Exchange of India (MCX), National Commodity and Derivates Exchange (NCDEX), Indian Commodity Exchange Limited (ICEX), Metropolitan Stock Exchange of India Limited (MSE), and National Stock Exchange IFSC Limited.
What is the Bombay Stock Exchange?
Stock exchanges are integral to the functioning of stock markets in India. They are platforms that allow companies to list their shares for being traded in the market. While there are many stock exchanges in India, the Bombay Stock Exchange or BSE stands out as the oldest and one of the most trusted ones in the country.
Frequently Asked Questions
While brokers double-check all calculations before charging investors, it is prudent to calculate the brokerage yourself once in a few days to make sure that there are no errors in calculation. Also, the stock brokerage calculator will give you a clear idea of the brokerage charged by your stockbroker and help you make better trading decisions. Remember to calculate the total trading costs that include brokerage, STT, stamp duty, and various other charges.
Since there is zero brokerage on delivery trades, remove all the delivery orders from the list of all orders placed on a trading day. Next, count the total number of intraday orders and multiply them by the fee charged by the broker per order. Use the Flat Fee Plan section of the stock brokerage calculator explained above to calculate the brokerage due.