Investment expenses include various fees like brokerage fees, commissions, advisory fees. Commissions vary from firm to firm, even segment to segment in which you are trading.
Stock trading is more affordable than ever, as most online brokers now have waived brokerage fees and offer free trading. Free trading is a nice little perk, but low-cost brokerage deals are not always as cheap as it appears. And another thing is that you may be confused about how brokers make money without brokerages. They provide several services like advisory, wealth management, diversified portfolio, margin trading, rehypothecation, etc., and charge fees accordingly. Thus, there are other revenues also. Here is the post delving into the commission-free trading movement in the complex world of trading.
Brokerage-free online share trading – what it means
A broker charges a brokerage fee to execute transactions and provide specialized services like sales, purchases, advisories, and delivery of securities. It is usually a percentage of the trade value.
Brokerage charges for equity trading depend on the type of trade you made – delivery trade or intraday trade.
- In delivery trades, the securities you buy get deposited into your demat account within T+2 days and remain in the demat account until you want to sell them, unlike day trading, where you buy and sell securities within the same trading session.
- Most brokers offer free trading in the Equity Delivery or cash & carry segment. The equity trader need not pay any commission to trade in the equity delivery segment, whereas brokerage varies in intraday trading. Different brokerages offer different brokerage plans for intraday trading.
How to start trading in India: You can open a free demat account with online brokers offering a commission-free trading facility. The broker does not charge the demat account opening charges and annual maintenance charges for the first year of opening the demat account.
What lacks online brokers offering free trading
No doubt that the evolution of zero-commission trading is favourable for retail investors, especially a novice with limited capital. But, online brokers are limited to only a few trading services.
- No research reports: You may not receive expert reports that would help decision-making regarding stock investments.
- No offline presence: You may not visit an online broker in-person as they are limited to service branches. Therefore, make sure you deal with an authorised broker only.
- No advisory service: Most online brokers do not provide advisory services to equity traders.
- Unreliable customer services: You may not get an answer from the broker when you need trading support.
- Check for bid/ask spreads. When you buy/sell stocks, you pay/receive more/less than the prevailing price. You need to check if the brokerage may provide an unattractive spread for you to receive the brokerage fees.
- Free trading may save your money on trading costs, but it can be counterproductive if it tempts you to become an intraday trader. Check what a broker is charging for trading in other segments.
Thus, all equity delivery investments are available at zero brokerage and all other charges will be the same as per the broker rules. Long-term investors or positional traders intended to invest and hold stocks in the portfolio for many years can enjoy free trading. Only a few brokers in India offer brokerage-free trading facilities in all segments. You need to decide your trading style before approaching a broker to select the right broker for yourself.