Does Zero Brokerage Make a Difference?
In recent times, zero brokerage trading has evolved as a popular option across stock traders in India. Zero brokerage for trading online or a negligible brokerage-based trading account is challenging the traditional full-service brokers since the difference in brokerage is notable.
While it sounds like a logical choice, as a stock investor, it is important to assess the pros and cons of zero brokerage trading before making a decision. In this article, we will explore zero brokerage trading and help you assess if it is good for you.
The Start of Zero Brokerage Trading in India
When you decide to start trading in shares, you need to open a trading account with a stockbroker.Traditionally, brokers would offer a basket of services like investment advisory, research reports, and portfolio management along with a trading account. They were called full-service brokers. However, the range of services would result in an increase in the brokerage charged by them.
With the evolution of online trading, many brokers realized that investors were content without the additional services as long as the brokerage was low. This led to the evolution of discount brokers, who started looking at reducing brokerage charges by removing services that were not demanded by traders. The trading account offered by these brokers has nominal or zero brokerage for trading online.
Also Read: Low Brokerage & Low Cost Discount Brokerage
How does Zero Brokerage Trading Work?
When you opt for a trading account offering zero brokerage for trading online, most brokers do not charge brokerage for delivery trades. For intraday trades, these brokers started offering monthly brokerage plans where you pay a fixed amount and place unlimited orders in a month.
Discount brokers leverage technology to cut costs and offer zero brokerage trading services. They make money by charging brokerage on intraday trades, Futures & Options, etc. They also try to sell online tools to help you trade efficiently.
Many discount brokers have started looking at further reducing brokerage by offering various plans where the intraday brokerage can be reduced further.
One such example is the ‘Pay only when you profit’ brokerage plan. Under this plan, you don’t pay brokerage on an intraday trade if you are booking a loss. The broker ensures that you are charged brokerage only when you profit. This zero brokerage trading plan is cheaper than the ones offering no brokerage on delivery trades alone.
How can Zero Brokerage Trading Make a Difference?
The stock market is known to be volatile, and stock prices can change when the investor sentiment changes. As a stock trader, this can mean losses or reduced profit margins. Since every trade has to go through a broker, the brokerage can further reduce profit margins. In such a landscape, zero brokerage trading can help reduce losses and increase your chances of breaking even or even booking small profits.
With a ‘pay only when you profit’ brokerage plan, the odds tilt slightly more in your favour. However, it is important to remember that not all brokerage plans are the same. Therefore, before you opt for a trading account with zero brokerage for trading online, make sure that you look for any hidden charges, margin structure, and whether the broker is offering trading in all types of orders that you want.
Discount brokers are offering zero brokerage trading services to help investors navigate the high-risk world of stock investing. While full-service brokers offer investment advisory services and research reports, most investors prefer to research themselves. Hence, there has been an increase in the number of investors opting for discount brokers.
However, it is important to remember that apart from brokerage, share trades are also subject to regulatory and statutory charges like STT, GST, etc. Most brokers offer online brokerage calculators that can be used to assess the total charges associated with a trade before booking a profit or loss. Make sure that you understand the structure of charges before opening a trading account
Share Market Knowledge Centre
- Demat account
- Share market
- Trading account
- Online share trading
- Intraday trading
- Futures trading
- Commodities trading
- Currency trading
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Frequently Asked Questions
Apart from brokerage, you will be liable to pay the following charges:
- Securities Transaction Tax or STT
- Stamp Duty
- Transaction charges as levied by the stock exchange
- Charges levied by SEBI
- GST on brokerage and certain other charges
- Demat account annual maintenance charges
- Charges for transactions on Demat account (depends on your plan), etc.
As per SEBI’s guidelines, all transactions in the stock market need to go through a broker. Hence, you need to open an account with a registered stockbroker and trade through him. Most brokers charge brokerage for offering these services. In recent years, many brokers have started offering trading account where there is no brokerage on delivery orders. Some brokers have also started waiving off brokerage on intraday orders where you book a loss. These are zero brokerage trading plans.