How Are Brokerage Charges Calculated in the Stock Market?

A share trader has to pay various charges other than the purchase price of a stock. These charges may include Security Transaction Tax, GST, service tax, stamp duty, transaction charges, brokerage charges, etc. The most prominent among them are the brokerage charges, which have to be paid for the services provided by the respective stockbroker.

All of these additional charges increase the actual cost of investing in shares. Therefore, it makes sense to pick a brokerage firm that will levy the lowest charges. Read through the given charges for all the information on brokerage and other associated charges before investing.

Who Are Brokers?

Brokers or stockbrokers are agents or financial intermediaries that purchase and sell shares on your behalf in the stock market. The services offered by a broker are called brokerage. Therefore, they act as an intermediary through which you can participate in stock market. 

Brokerage services typically include investing in Stocks, futures, options, bonds, and other financial instruments. Since individual investors cannot directly place buy or sell orders on the stock exchanges, they need to take the help of a registered stockbroker. Since brokers are knowledgeable about the stock market, some of them offer advisory and portfolio management services.

Types of Brokers

Brokers are widely categorised as full service brokers and discounted brokers based on the services they offer.   

• Full-Service Brokers

Full-service brokers are traditional brokers, who cater to a holistic service to the investor. They take on the responsibility to do the research and invest accordingly in various instruments including stocks, currency, and commodities. Besides executing trades, full-service brokers provide asset management, retirement planning, real estate planning and tax filing services. 

In addition, they provide expert investment advice and facilitate transactions on your behalf, charging 0.3% to 0.50% for their services.

• Discounted Brokers

Appointing a full-service broker can be expensive. Furthermore, investing through an intermediary may not always prove beneficial, especially for investors who prefer doing their research for stock selection. Such investors prefer online brokers who levy discounted charges. 

Discounted brokers offer a platform where you can execute your trade in stocks and commodities. They do not provide any financial advice, and therefore, they charge fewer fees compared to full-service brokers.

Discounted brokers charge a fixed fee for each trade, while some brokers waive off many of the charges levied by full-service brokers.

What Are Brokerage Charges and Why Is It Payable?

You can not participate in stock market trading without the help of a broker. Furthermore, you will require a Demat account and a trading account which are provided by a broker. For availing these services, you will have to pay for the convenience by allotting a certain percentage of the total cost of the share traded or a flat fee.

Brokerage charges are applicable for both buying and selling of shares in the stock market. However, some brokers levy charges once, either for purchasing or buying. Depending on the scale of trade, brokerage charges can be substantial. So, before executing large trades, it is a good idea to go through the rates charged by your brokerage firm and calculate your costs.

Let us understand the calculation of brokerage fees with an example. Consider a broker charging 0.5% for intraday trading on the total turnover. The stock you bought, costs ₹100. In that case, the broker will charge 0.5% for purchasing, and again 0.5% for selling the stock. That is, a total of 1% or ₹1 will be deducted from your returns.

Brokerage Plans Available in India

The following are the two major types of brokerage plans available in India.

• Monthly Unlimited Trading Plan

The abovementioned plan offers a fixed monthly charge that needs to be paid for trading in stocks and securities, irrespective of the number of transactions executed under a given segment.

• Flat Per Trade Brokerage Plan

The flat brokerage offers a fixed per-trade rate irrespective of the segment.

Types of Brokerage Charges

The brokerage charges are of two types which are as follows:

• Intraday Brokerage

Intraday brokerages are charged for intraday trading; that is when a trader purchases or sells shares within a day’s trading session. Intraday charges typically vary from 0.01% to 0.05% of the total volume or flat fee

• Delivery Brokerage

Delivery brokerage charges are applicable when you decide to hold your stocks for over a day. It involves the delivery of the shares you have bought to your Demat account. Brokerage charges for delivery range from 0.2% to 0.75% of the total share cost or flat fee. Few discounted brokers do not charge brokerage on delivery trades.

How to Calculate Brokerage Charges?

Following are the formulas to calculate brokerage charges based on intraday and delivery charges.

• Delivery Brokerage Charge Formula

Delivery brokerage cost = Number of shares x market price x percentage of share cost chargeable (higher than Intraday brokerage charge). 

• Intraday Brokerage Charge Formula

Intraday brokerage cost = Number of shares x Market price of each share x the percentage of share cost chargeable

If you purchase 10 shares costing ₹100 each with a brokerage charge of 1%, then the brokerage cost as per the formula will be:

Intraday brokerage cost = 10 x ₹100 x 1%. = ₹10. 

Additionally brokerage will be charged on sales also.

Factors on Which Brokerage Charges Depend

The factors affecting brokerage charges are as follows

• Purchase and Selling Price

The buying and selling price of a share is the deciding factor for brokerage charges, as they are decided over a certain percentage of the total share cost.

• Type of Broker

As discussed before, full-service brokers charge a higher percentage of total share cost, because of the versatile services offered. These services including, conduct research, expert investment advice, asset and sales management, providing assets for banking, etc. The more additional services, the higher will be these charges.

In contrast, discounted brokers provide a trade execution platform and do not offer any investment expert advice, allowing room for independent research and investment.

•   Volume of Transaction

The volume of transactions is directly proportional to the brokerage charges and therefore, it is one of the prominent factors to consider when ordering a trade. 

The brokerage charges may also vary as per the volume of the transactions sometimes, depending on the broker. 

Other Charges Applicable for Share Trading

Below are other charges which are included in the trading cost:

• Account opening charges

Few brokerage houses charge account opening charges as well.

• Securities Transaction Tax (STT)

STTs apply to the total value of the asset being traded including, shares, bonds, and other equities listed on a recognised stock exchange. It is applicable for every trade of shares and does not depend on the profits made from it. Tax by the government when transacting on the exchanges. Charged as above on both buy and sell sides when trading equity delivery. Charged only on the selling side when trading intraday or on F&O.

• Commodity Transaction Charges

Commodity Transaction Charges or CTC are taxes which apply to commodity derivatives.

• Stamp Duty

Stamp charges by the Government of India as per the Indian Stamp Act of 1899 for transacting in instruments on the stock exchanges and depositories. 

• Goods and Service Tax (GST)

Investors are liable to pay 18% of the transaction and brokerage charges, as GST to the Union Government.

• SEBI Turnover Fees

As the name suggests, it is chargeable for any transactions within the stock market to the stock market regulator, the Security Exchange Board of India (SEBI).

• Annual Maintenance Charges (AMC)

AMCs are to be paid by the investors holding a Demat account for the maintenance and regulatory services. However, some Depository Participants offer AMC-free accounts as well.

Final Word

You may consider calculating the amount you have to pay for a particular trade using a brokerage calculator, brokerage calculators are easily available online. You only need to enter the quantity, purchase price, and selling price of the securities, and select the segment accordingly to get the required results.

Frequently Asked Questions