Part of selecting a broker to trade with involves getting the best price for your brokerage. Many brokers in India offer brokerage rates on a percentage basis. For example, you might have heard a broker sell you that he offers "0.05%" as lowest brokerage or "5 paisa brokerage." Both 0.05% and 5 paisa mean the same thing -- he will charge you 5 paisa per Rs. 100 of turnover.
First rule of getting lowest brokerage: understand the rates that your broker is giving you.
On paper, 5 paisa brokerage sounds like a great deal. It is such a low number that we sometimes forget to think how it can add up! For example, let's say you are a casual investor and you think the Indian market is going to go up in the next 7 months or so. You want to invest your money on the NIFTY index. Let's say NIFTY is priced at Rs. 6,000. Some of you may know this and some of you may not -- you cannot just buy a quantity of one of NIFTY future. The exchange usually trades NIFTY in "lot sizes." One "lot" of NIFTY is a quantity of 50 shares and is the minimum any broker will let you trade with.
Now, think about it. If you want to buy and sell one lot of NIFTY (that is, 50 shares), your turnover is Rs. 6,000 * 50 = Rs. 3 lakh for buying. Let's say after 6 months, you sell it for Rs. 6,050. Your turnover for selling would be Rs. 6,050 * 50 shares = Rs 3.025 lakh.
Do you know what your brokerage for that would be? Your turnover for one lot of NIFTY is 3 lakh + 3.025 lakh = 6.025 lakh. A broker offering you 5 paisa brokerage would take 6.025 lakh * 0.05% ~ Rs. 300.
Rs. 300 may not sound bad, but most people would like to trade more than just one lot of NIFTY Futures. If you traded 5 lots of NIFTY futures, you are paying your broker over Rs. 1,500 for one single trade! That is not the lowest brokerage you can get if you look around.
Always watch out for the hidden fees that brokers slide in to your total. Hidden fees can come in the following forms:
Many brokers will continuously call you and send you recommendations and tips from their research desk. Watch out because this is done to purely earn brokerage revenue from you. Ask your broker to not send you tips/recommendations unless you specifically ask him to do so.
Finding the lowest brokerage in this market can look challenging. However, if you mostly trade using your computer or mobile, you should take a look at discount brokerage firms such as ourselves, RKSV. We offer all the major services that a big broker does minus the hidden fees. We even have a calculator for you to see exactly how much you should be paying for a trade. Whether you are an investor or day trader, take a look at our plans that aim to offer India the lowest brokerage.