Inner secrets of brokerage charges

It is unlucky that the stock market is still plagued by high priced options in these times also. In the Indian stock market stockbrokers usually, charge brokerage at 0.3% to 0.5% on transactions. It is unknown how the number of 0.3% — 0.5% came into existence. The brokerage services consist of three main costs, i.e., the cost taken on execution, the cost realized on advice, and also cost taken on funds.

Cost of Execution

This is the cost actually placed on trade by means of the exchange either through the offline mode or by way of the online mode.

Cost of Advice

The costs levied on a costly research team pouring out, sell and buy recommendations and providing advisory and also research to customers. In many of the service provider companies, there is a huge team of research analysts who keep on tracking the data of various companies and help the traders to form a strategy that can help to fetch good profit or create a lucrative portfolio for the future.

Cost of Funds

The working capital that is always blocked by the broker commencing from the time taken by the exchanges in settlement visa-a-versa in relation to the customer. The funds get blocked sometimes for two days or five days sometimes.

It is worth to take note of the only price that in reality forms a percentage cost with regard to brokerages constitutes the price of funds and it is the single price that can be said to be directly proportional in relation to the size as that of the trade. In case a transaction happens to be large, the amount of the working capital blocked will be large, and in that order, the price will be higher. On the other hand, the execution cost and the advice cost bear no connection with any kind of size of the transaction.

No Option to the client

If you take an instance of an independent trader or investor wishing to purchase stock worth 100,000. In case the investor puts up all of his funds on T-day although the broker makes a settlement in the exchanges scheduled on T+2. Moreover, did not receive any advice or research from his broker, the investor shall be levied a fixed percentage brokerage at the rate of 0.5%. The investor has to give out Rs 500 for each transaction to be carried out. The consumer will have to pay the necessarily full price whether the investor consumed all the services or not that are offered by the broker.

The trouble with bundled pricing 

The present pricing structure in relation to the brokerage industry can be said to be bundled pricing. Although this structure suffers a number of problems, for example, want for transparency, excessive price, and the client has no choice to bring down his costs by eliminating the services that the customer does not consume. The case with a discount broker in India is totally different as they have no flexibility and carry out execution services only.

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