When you decide to start trading in shares, there are a few accounts that need to be opened. First, you need a Demat account where the securities will be stored. Next, you need a trading account online with a stockbroker registered with the exchange where you want to trade. And finally, you need a banking account linked to your Demat and Trading accounts.
Published on 11 January 2022
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With these three accounts in place, you can commence share trading. However, before you begin, there are some costs that you need to be aware of so that you can determine entry and exit points that generate profit.
Demat accounts have charges like account opening, annual maintenance, custody fees, transaction charges, etc. You need to make sure that you are aware of all charges associated with a Demat account.
Next, you might have to maintain a minimum average balance in your banking account to avoid being charged non-maintenance charges. Lastly, when you open a trading account, the stockbroker will charge brokerage for allowing you to trade on the exchange.
Once you have factored in all these costs, you will be in a better position to make trading decisions. Some stockbrokers have started offering a zero brokerage trading account to help investors make the most out of trading opportunities.
In this article, we are going to talk about a zero brokerage trading account and help you understand how you can trade with zero brokerage.
What is a Zero Brokerage Trading Account?
As per SEBI’s guidelines, investors cannot place an order in the stock market directly. They have to go through a stockbroker registered with the exchange. And, brokers charge brokerage to offer trading services.
However, in recent years, technology has allowed brokers to drastically reduce costs and extend highly discounted brokerage plans to traders. A zero brokerage trading account is one where you pay a fixed monthly fee and enjoy trade with zero brokerage for the entire month. You can think of it as a monthly pass purchased by you for a train or a bus. The amount is highly discounted, and you can travel by bus or train as many times as you wish.
When you open a zero brokerage trading account,you don’t have to calculate brokerage for every trade. You can factor in the monthly charge like other costs associated with the Demat account and plan your trades accordingly.
When you choose a plan that allows you to trade with zero brokerage, you pay a fixed amount every month. This plan can be beneficial to you only if you trade frequently or in high volumes or make several trades in one day. Allow us to explain this with the help of an example:
Let’s say that the zero brokerage trading account charges ₹1000 per month.
Now, let us assume that a general trading account online charges ₹20 per order. If there are 20 trading days in the month and you place 4 orders per day and are charged ₹20 per order, then the total brokerage paid by you will be:
Brokerage = 20 x 4 x 20 = ₹1600
This is much higher than ₹1000 charged by the broker under the zero brokerage trading account.
However, if you place only 2 orders per day, then your brokerage will amount to:
Brokerage = 20 x 2 x 20 = ₹800
This is lower than the fixed monthly charge. In such a scenario, a zero brokerage trading account is not beneficial to you.
In a nutshell, active traders can benefit when they trade with zero brokerage by paying a fixed amount every month. For traders who trade less frequently, a regular brokerage plan can be a better option.
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As the name suggests, online trading is the exchange of financial instruments through a brokerage's internet-based proprietary trading platforms. Online trading facilities have increased dramatically since the late 90s with the introduction of affordable computers and high-speed internet. Stocks, mutual funds, bonds, ETFs, options, futures, and currencies can all be traded online.
Trading on equity, also called financial leverage, is a process through which a company incurs new debt in bonds, loans, preferred shares, or debentures to acquire additional income. On this, it can earn greater returns than the interest created by the debt.
As the instrument derives its value from the underlying assets, it can influence the prices of those assets in the short term.
Derivative market trading is just like trading in the cash segment of the stock markets. There are three key requisites - Demat account, trading account, and margin maintenance.
While this is subjective, since you don’t have to worry about brokerage before squaring off every position, your breakeven point will be lower. This will offer a better opportunity to earn profits. However, it is important that you assess the kind of trader you are before making this decision. Choose a zero brokerage plan only if you are entering a high number of trades and are saving a lot on brokerage.
When you trade with zero brokerage and pay a fixed amount to the broker every month, it benefits you only if you are placing several orders. These plans can be cost-efficient for highly active traders. Hence, assess your trading frequency and choose accordingly.
If you don’t want to worry about brokerage while placing every order, then you can opt for zero brokerage trading plans and trade with zero brokerage. In these plans, you will be required to pay a fixed amount every month, and you will be allowed to place as many trades as you want.
Related Articles
What is Online Trading?
As the name suggests, online trading is the exchange of financial instruments through a brokerage's internet-based proprietary trading platforms. Online trading facilities have increased dramatically since the late 90s with the introduction of affordable computers and high-speed internet. Stocks, mutual funds, bonds, ETFs, options, futures, and currencies can all be traded online.
Trading on equity, also called financial leverage, is a process through which a company incurs new debt in bonds, loans, preferred shares, or debentures to acquire additional income. On this, it can earn greater returns than the interest created by the debt.
As the instrument derives its value from the underlying assets, it can influence the prices of those assets in the short term.
Derivative market trading is just like trading in the cash segment of the stock markets. There are three key requisites - Demat account, trading account, and margin maintenance.
While this is subjective, since you don’t have to worry about brokerage before squaring off every position, your breakeven point will be lower. This will offer a better opportunity to earn profits. However, it is important that you assess the kind of trader you are before making this decision. Choose a zero brokerage plan only if you are entering a high number of trades and are saving a lot on brokerage.
When you trade with zero brokerage and pay a fixed amount to the broker every month, it benefits you only if you are placing several orders. These plans can be cost-efficient for highly active traders. Hence, assess your trading frequency and choose accordingly.
If you don’t want to worry about brokerage while placing every order, then you can opt for zero brokerage trading plans and trade with zero brokerage. In these plans, you will be required to pay a fixed amount every month, and you will be allowed to place as many trades as you want.
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