How To Calculate Brokerage in the Share Market

Understanding Brokerage Charges

The brokerage fee is charged by the broker when you buy or sell shares on their platform. A brokerage fee is necessary for the stockbroker to fund their operations, and understanding what is brokerage charges helps investors know the cost of executing trades.

The Securities and Exchange Board of India (SEBI) has specified the maximum brokerage that a broker can charge. SEBI states that brokerage fees should not exceed 2.5% of the total value of the transaction done by the client. Therefore, a broker cannot charge more than 2.5% brokerage.

Now, let’s understand how to calculate brokerage fees. Moreover, the brokerage fee depends on the type of broker, i.e., full-service broker and discount broker, and other factors.

Type Of Broker

Now that you know what brokerage charges are, let’s understand the different types of brokers. In India, there are primarily two types of brokers:

Full-Service Brokers: These brokers offer a wide range of services related to securities trading, including research, sales management, and advisory services. As a result, their charges tend to be relatively higher.

Discount Brokers: Discount brokers mainly provide a trading platform and charge a significantly lower brokerage fee. They typically impose a flat rate, regardless of the trade's value or size.

Types of Brokerage Charges

Some of the common brokerage charges are:

• Percentage-Based Brokerage: This is charged as a fixed percentage of the total trade value, usually by full-service brokers. For instance, a 0.5% charge on a trade worth ₹1,00,000 amounts to ₹500.
  

• Flat Fee Brokerage: Here, a fixed fee is applied per executed order, regardless of the trade size. Discount brokers commonly follow this model. Example: ₹20 per trade.
  

• Regulatory Charges: These are mandatory fees levied by authorities and include the Securities Transaction Tax (STT), SEBI charges, exchange transaction charges, and stamp duty. For example, STT is 0.1% on delivery-based equity trades.
  

• GST: An 18% Goods and Services Tax is applied on the total brokerage and regulatory fees combined.
  

• Hidden or Platform Charges: Some brokers may impose additional costs such as account maintenance fees, call-and-trade charges, or inactivity penalties, which traders should check carefully before opening an account.
  

How To Calculate Brokerage Fees?

It is important to remember that brokerage charges apply to both buying and selling shares. In some cases, brokers may charge a fee only once, regardless of whether you buy or sell.

If you are wondering how to calculate brokerage in the stock market, here is the step-by-step guide:

• Step 1: Find out how your broker charges fees. Some charge a percentage of the trade value (e.g., 0.05%), while others may charge a flat fee per trade. Always confirm whether fees apply to both buy and sell orders.

• Step 2: Calculate the total trade value. To calculate the cost of buying, multiply the number of shares by the share price. For example, if you buy 100 shares at ₹100 each, your trade value is ₹10,000.

• Step 3: If your broker charges a percentage-based fee, apply it to the trade value. For example, at 0.05%, brokerage on ₹10,000 will be: ₹10,000 × 0.05% = ₹5.

• Step 4: Brokerage is usually charged on both buying and selling. So, when you sell the shares, the same calculation applies again. For instance, another ₹5 will be charged on selling, making the total brokerage ₹10.

• Step 5: If your broker charges a flat fee (e.g., ₹20 per order), you pay that fixed amount regardless of trade size. So, whether you trade ₹10,000 or ₹1,00,000, the brokerage remains ₹20 per transaction.

• Step 6: Remember, brokerage is not the only cost. You must also include other charges like STT (Securities Transaction Tax), SEBI fees, GST, and stamp duty.

Example of Brokerage Charges

The brokerage you pay depends on the total cost of the shares and the agreed-upon percentage. Here’s how to calculate brokerage in the share market:

• For intraday trading at a rate of 0.05% or a flat fee, depending upon the broker, whichever is lower, here is how to calculate the brokerage fee: Market price of 1 share *number of shares * 0.05%.

• For delivery trading at a rate of 0.50%, here is how to calculate brokerage: Market price of 1 share * number of shares * 0.50%.

As the competition among brokers is getting tougher, the charges are getting more reasonable, which can be good news for investors.

Factors Affecting Brokerage Fees

The calculation of brokerage depends on the following factors:

1. Buy/Sale Price One of the main factors determining brokerage is the price at which you buy or sell a single security unit. The brokerage is directly linked to this price.

2. Volume Of Transaction Another significant factor influencing brokerage, whether calculated manually or using a brokerage calculator, is the volume of your transactions. Generally, larger transaction volumes result in higher brokerage amounts. However, some brokers may reduce the percentage commission for investors who trade in large quantities.

3. Useful Tips Once you’ve made your choice of broker, it’s crucial to verify that the brokerage they apply to your transactions aligns with the agreement you both made. Additionally, keep an eye on the brokerage charges applied at regular intervals.

Another thing to be aware of is the Annual Maintenance Charges, or AMC, deducted by the broker from your account. Make sure to enquire about these charges as well. If the AMC charge is deducted every month, it can significantly reduce your invested funds over time. In such a situation, it might be more cost-effective to pay a lump sum amount upfront to nullify the monthly AMC charges.

Conclusion

Brokerage charges are the fees you pay to a broker for their services. Brokers charge these fees to generate income for themselves. As a trader, you have several broker firms, such as Kotak Securities, which offer hassle-free trading. The brokerage fee depends on the type of broker you select. Discount brokers charge low fees, whereas full-service brokers charge high fees. The reason brokers charge brokerage fees is to cover the costs of facilitating your trades, providing research and analysis, and earning a profit for their services.