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.
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:
In this case scenario, the brokerage charged would be
(1000 * 960) * (0.01%) +
(1000 * 970) * (0.01%)
= 96 + 97
= Rs. 193 in brokerage charges.
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 of zero brokerage models (either on a pay per trade model or through fixed monthly fee model) are tremendous.
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.