How to Calculate Brokerage in the Share Market?

As an investor, to invest or trade in company shares and other securities, you need a broker who works as an intermediary between you and the stock exchange to execute those trades.

Apart from executing trade orders, a broker also provides additional services, such as investment advice, financial planning, and tax planning.

In return for such services, a broker levies a brokerage charge from you as a commission. Read this blog to learn what this charge is, how to calculate brokerage and more.

What Do Brokerage Charges Mean?

Whenever you are purchasing or selling securities in the share market using a trading platform, your broker imposes a certain brokerage charge. This fee or charge is important, as it is the primary income source of your broker to fund their operations.

A broker levies this charge as per guidelines stated by the SEBI. As per the SEBI statement, a broker can charge a maximum of 2.5% of the total transaction value of a trade as their brokerage fee.

However, depending on your broker’s type, your brokerage charges might vary for trade execution and other services.

What are the Different Types of Brokers in India?

Before delving into how to calculate brokerage, understanding their types is important, as the type defines brokerage charges too:

• Full-Service Brokers

  A full-service broker not only helps with trade execution but also facilitates additional services. They include asset allocation, asset and wealth management, tax and retirement planning, etc. When you buy or sell securities, they levy a certain percentage of the trade value as brokerage. Usually, this percentage ranges from 0.01% to 0.50%.

• Discount Brokers

  Unlike a traditional broker, a discount broker primarily focuses on trade execution on your behalf. If you have a decent grip on investments, this is a cost-saving option for trading in stocks, commodities, etc. Their brokerage charges are low compared to traditional brokers and charge a fixed or flat fee for each trade.

What is the Procedure to Calculate a Brokerage Charge?

Take a look at the following section for a glimpse at how to calculate brokerage in share market in India and which aspects determine brokerage charges:

• Locate the Trading Type

  Brokerages determine and impose a certain charge, depending on the type of trade you are executing. For example, your trade might be an intraday or a delivery trade, and generally, intraday trading incurs a higher brokerage fee than a delivery trade.

• Brokerage Rate

  Your broker follows a certain cost structure to calculate your brokerage charges. If it is a traditional broker, you must pay a certain percentage as a brokerage fee. Discount brokers charge on a flat-fee basis. For example, they might charge INR 50 for a trade execution.

• Transaction Volume and Additional Costs

  Your broker might charge more when your trade volume is high, especially if they follow a percentage-based cost structure. However, some brokers add a discount for a higher trade volume. They also add other charges like the STT, GST, etc., to determine the actual amount.

Example of Brokerage Fees

Now that you have a basic idea about which aspects a broker considers to determine a final brokerage charge, let us understand it better using examples:

• Brokerage at Percentage

  Suppose your broker is a full-service broker and charges you 0.05% as a commission for every purchase or sell order. If you are purchasing 100 shares of a company at INR 2500 per share, you must pay INR 125 as a brokerage, excluding the additional charges. Calculate the brokerage amount by multiplying the amount of each share by 100 and then by 0.05%.

• Flat-Fee Brokerage

  Assume that you are trading using a discount broker with a fixed or flat fee model, and they charge INR 50 for every purchase or sale order. When you buy 100 shares or more of a company at once, you pay only INR 50 irrespective of trade volume.

What are the Important Factors Impacting Brokerage Fees?

After learning how to calculate brokerage in stock market, take a look at the following factors that impact your brokerage:

• Price of Purchase or Sell Orders

  The price at which you are purchasing or selling a certain security is one of the main factors determining a brokerage charge. It is directly linked with brokerage price, especially for a traditional broker.

• Types of Trading Instruments

  When investing or trading, different trading instruments carry separate charges. Thus, brokerage varies between securities, such as equities, currencies, futures and options, etc.

Conclusion

Learning how to calculate brokerage is imperative for an optimised return from investment activities. Depending on the broker’s type, the brokerage charge may be percentage-based or flat fee-based. Analyse your trading requirements and choose one that matches your requirements.

FAQ’s

1. What is the difference between flat-rate brokerage and percentage-based brokerage?

Brokers following a flat rate impose a fixed amount of money for every trade execution, irrespective of trade volume. Brokers following a percentage-based approach take a certain percentage of your trading volume as a brokerage fee.

2. How do I calculate brokerage on an online stock trading platform?

Online brokers have a dedicated online calculator to determine brokerage charges. With a brokerage calculator, you can calculate charges across equity, currency, commodity, etc.

3. Are there any additional charges beyond brokerage when buying or selling shares?

Yes, apart from brokerage charges, there are additional charges, like STT, GST, SEBI charges, stamp duty, etc.

4. Can brokerage fees be negotiated with stockbrokers?

Yes, depending on your broker, it is possible to negotiate brokerage fees, especially when you are a frequent trader and trade in higher volume.