Zero brokerage: what does it mean?

In India, most brokers charge brokerage on your trades. Brokerage is calculated (for all products outside of options) as a percentage of the turnover done on a trade. On options, it’s usually calculated on a fixed brokerage amount per lot (for example, Rs. 100 per lot).

Here, we will explain what the concept of zero brokerage means by taking you through various examples.

Example trade with brokerage

Let’s take an example of a broker that is offering 1 paisa brokerage on intraday (MIS) equity trades and 10 paisa brokerage on delivery trades. Let’s assume you place the following two trades:

  1. Buy 1000 shares of Reliance Equity at Rs. 960
  2. Sell the same 1000 shares of Reliance Equity at 970 during the same day.

In this case scenario, the brokerage charged would be

(1000 * 960) * (0.01%) +
(1000 * 970) * (0.01%)

= 96 + 97
= Rs. 193 in brokerage charges.

Example trade with zero brokerage

Now, let’s take you through the same example with a flat pay-per-trade, zero brokerage model.

Assume that your broker charges a flat fee of Rs. 20/trade, and the same two trades were placed as above. Since you placed two trades, your total fees would be just Rs. 40.

The benefits

The benefits of zero brokerage models (either on a pay per trade model or through fixed monthly fee model) are tremendous.

  1. On a zero brokerage model, you don’t have to worry about the size of your trade
  2. On a zero brokerage flat monthly fee model, you don’t have to worry about how many trades you place during a particular month.
  3. On a zero brokerage model, your break-even point is lower. This increases the probability of a trade being profitable.
  4. That way, you never need to worry about how large or small your trade size is.

That is the power of zero brokerage! Don’t hesitate to ask your broker how much you are paying in brokerage, as you might want to consider switching to a broker that charges zero brokerage.

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