Discount Broking – Game of Transaction Charges

Last updated on April 16th, 2016

If you visit any of the Discount Broker’s website or any related sites, you will find that they are able to offer such a low commission rates because they eliminated the infrastructure overheads such as multiple branches, huge employee benefits etc.

But have you ever wondered, are they able to operate (and profitable) only with brokerage charges as low as Rs 9 to Rs 20?. Is it sufficient enough and rewarding to run a business even with very few employees and single office? And provide all the top class services like advanced softwares, reports etc for free?

Read : 10 Best Trading Platforms of India

  Name of the Game is “Transaction Charges”

NSE Transaction Charges

When you trade with any broker, brokerage is not the only amount which is deducted from your profit (added in case of loss). Take a look at the sample contract note and charges deducted for the trade done. (Click on it to Zoom)

Sample_contract_note

                                                       (Click to Enlarge)

Below are the various charges we incur when we trade with any broker.

  • Brokerage Charges
    • Charged by Broker for his services (Set by the Broker)
  • Transaction/Turnover Charges
    • Charged by Exchanges such as NSE & BSE (but set by Broker)
  • Service Tax
    • Set by the Central government (On Brokerage + Transaction charges)
  • Security Transaction Charges (STT)
    • Set by the Central government
  • Education Cess and Higher Education Cess
    • Set by Central government (on Service Tax)
  • SEBI Charges
    • Set by SEBI on Turnover
  • Stamp Duty
    • Charged by State government

Oh My God, so many taxes isn’t it!. Anyway, first two are the categories where the brokers actually make money and amount from rest of the categories goes in service of our beloved mother India.

First category – “Brokerage charges ” needs no explanation as everyone understand it well. What is really interesting with discount brokers is , the charges is same for the customer who trades with Rs 10,000 and the one with Rs 10 Crores. It is really worth appreciable that unlike full service brokers, discount brokers does not discriminate based on the net-worth of the client!. 

But the transaction charges are not fixed like brokerage charges and this is where they actually make the real money. Higher the value of your trade (turnover), higher the charges you pay. 

  Slabs for Transaction Charges

Transaction charges are the charges levied by the exchanges (this is how exchanges make profit) for carrying out the transaction through them. The charges are fixed by the exchanges depending upon the total turnover per month by the particular broker. Exchanges define various slabs for different turnover amount.  Take a look at the current slabs for the future segment defined by NSE.

NSE Transaction Charges Slabs

Source: NSE Website

As you can see, higher the turnover by the broker, lower the charges he has to pay to the exchanges. So because of this, the broker with high turnover will be able to pass on the benefit to their customers and remain competitive compared to the one with lower turnover. Look at the transaction charges of some of the prominent discount brokers.

Sl NoBrokerTurnover Charges
1Zerodha LogoRs 325/Cr (Delivery)
Rs 325/Cr (Intraday)
Rs 210/Cr (Futures)
Rs 5300/Cr (Options)
2tradejini logoRs 325/Cr (Delivery)
Rs 325/Cr (Intraday)
Rs 200/Cr (Futures)
Rs 5300/Cr (Option)
3compositedge logoRs 375/Cr (Delivery)
Rs 375/Cr (Intraday)
Rs 290/Cr (Futures)
Rs 7000/Cr (Option)
4RKSV logoRs 325/Cr (Delivery)
Rs 325/Cr (Intraday)
Rs 210/Cr (Futures)
Rs 5500/Cr (Option)
5SASonline logoRs 325/Cr (Delivery)
Rs 325/Cr (Intraday)
Rs 250/Cr (Futures)
Rs 6500/Cr (Options)

So the difference between the amount charged by the broker and the amount paid by the broker to the exchanges is the profit to the broker in addition to the brokerage charges.

Let us take an example of Zerodha who charges Rs 2.10/ lakh as the transaction charges. Zerodha at present cloaks turnover of around Rs 7000 crores per day. Assuming 22 trading day per month, net turnover will be around Rs 154000 Crores which is certainly above Rs 15000 crores slab. So the difference of (Rs2.10 – Rs 1.75)/lakh = 0.35/lakh is the amount retained by Zerodha which will be around 54 Lakhs per month.

Sl NoDescriptionFigures
1Turnover Charges By ZerodhaRs 2.10/Lakh
2Turnover Charges By NSERs 1.75/Lakh
3Profit to Zerodha Per LakhRs 0.35
4Turn Over Per dayRs 7000 Crores
5 Profit to Zerodha Per DayRs 2.45 Lakhs
6Turn Over Per MonthRs 154000 Crores
7Profit to Zerodha Per MonthRs 53.9 Lakhs

The revenue through the transaction charges is the one which can be easily quantifiable by the broker as it entirely depends on the turnover amount unlike brokerage charges which based on per order. A trader might carryout the same turnover through single order or multiple orders (due to market conditions) which results in variable brokerages, however net turnover charges is always fixed.

  Wait a minute, Before you conclude anything..

We got to know that, discount brokers make money through transaction charges as well, But what it means to us as traders?. Whether full service brokers are better options in cost effectiveness prospective ?.

Full service brokers are good deal when the trader is looking out for research reports,  to visit near by branches etc. But when it comes to saving on brokerage charges, discount brokers are the ultimate choice. Lets see why.

Take the above example itself. The typical brokerage charged by the full service brokers is 0.05% on the total turnover (for futures). So the brokerage charged by a full service broker with monthly turnover of Rs 154000 crores would be (hold your breath!)

  • Rs 15400 crores x 0.05% = Rs 77 crores !

Yes, these are the charges recovered from the traders as brokerage. Apart from this, full service brokers also charge transaction charges almost equivalent to discount brokers. So for us as traders, it is lesser of the two devils (Full service and discount brokers) that we need to select.

If you are well versed with the market and don’t need any assistance in carrying out your trades, you can save approximately 98% of your brokerage charges by trading with discount brokers. Below are the brokerage charges of leading and most popular discount brokers of India. They tend to provide superior services as compared to trading account by banks as it is their main business and bread & butter. Speak to each of them, ask questions and select the best broker who suits your trading needs.

Sl No BrokerNameBrokerage Contact Information
1Zerodha LogoZerodhaRs 20/Order
2SASonline logoSAS OnlineRs 9/Order
Unlimited Trading Plans:
Rs 499/Month (Currency)
Rs 999/Month
Contact SASOnline
3tradejini logoTradejiniRs 20/Order

4RKSV logoRKSVRs 20/Order
Unlimited Trading Plans:
Rs 1999/Month
Rs 2999/Month
Rs 3999/Month
Rs 9999/Month

5Tradeplus logoTradePlusOnlineUnlimited Trading Plans:
Rs 99/Month
(Options, Currencies & Commodities)
799/Month
(Futures)


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