How to Calculate Brokerage Costs in the Stock Market?

When trading in the stock market, you have to pay a number of charges except the purchase price of a stock. These charges may include Security Transaction Tax, service tax, Goods and services tax, stamp duty, transaction charges, brokerage charges, etc. Among these charades, the most prominent one is the brokerage charges. It is paid for the services provided by the respective stockbroker.

These charges increase the actual cost of share investment. Hence we need to pick a broker or brokerage firm that offers the lowest charges with best services. Read the article to get a complete understanding of the brokerage charges and how you can calculate them. 

What Is Brokerage Fee?

When you buy or sell shares on the platform of a broker, they charge you a brokerage fee. The fee is essential for the stockbroker to fund their platform and operations. However, there is a maximum brokerage fee specified by the SEBI (Securities and Exchange Board of India). It is stated that the broker cannot charge a brokerage fee more than 2.5% of the total transaction value of the client. The maximum limit of brokerage is 2.5%. 

Type Of Broker

There are mainly two types of broker in India:

Full-Service Brokers: These brokers offer you a wide range of services. The services are related to securities trading (including research, sales management, and advisory services). The charges of full-service brokers tend to be relatively higher as compared to other types of brokers.

Discount Brokers: These brokers mainly offer you a trading platform. They charge a significantly lower brokerage fee. Most commonly they typically impose a flat rate, no matter what the trade’s value or size is.

Types of Brokerage Charges

The brokerage charge is also of two types:

Intraday Brokerage Charges: It is charges for intraday trading. In this type of brokerage charge the trader buys or sells shares within a day’s trading session. The intraday charges usually vary from 0.01%-0.05% of the total volume or flat fee. 

Delivery Brokerage Charges: When you decide to hold your stocks for over a day, you have to pay delivery brokerage charges. It usually includes the shares that you have bought to your demat account. For delivery, the brokerage charges range from 0.2%- 0.75% of total share cost or flat fee. There are few discounted brokers that don’t charge a delivery brokerage fee.

How Can You Calculate Brokerage Charges?

You can calculate the brokerage charges based on intraday and delivery charges by using the formulas:

Delivery Brokerage Charge Formula

Delivery brokerage charge= No. of shares x market price x % of share cost chargeable (more than Intraday brokerage charge). 

Intraday Brokerage Charge Formula

Intraday brokerage charge= No. of shares x Market price of each share x % of share cost chargeable

Let’s take an example that you buy 10 shares worth ₹100 each with a brokerage charge of 1%. The brokerage charge in that case, as per the formula will be:

Intraday brokerage charge= 10 x ₹100 x 1%. = ₹10. 

In addition, the brokerage will be charged on sales also.

Brokerage Plans Available in India

There are two major type of brokerage plans available in India:

Monthly Unlimited Trading Plan: This plan offers a fixed charge monthly. This charge needs to be paid for trading in stocks and securities, regardless of the number of transactions that have been done by the traders in a given segment.

Flat Per Trade Brokerage Plan: In this plan, the broker offers you a fixed per-trade rate no of the regardless of the segment.

Factors That Affect Brokerage Charges

The factors that affect the brokerage charges are as follows:

Purchase and Selling Price: This is the deciding factor for brokerage fees. As they determine the specific percentage of the total share cost. 

Type of Broker: As we mentioned above the full service broker charges a higher brokerage fee because they offer versatile services. On the other hand a discounted broker charges less brokerage fee.

Volume of Transaction: It is directly proportional to the brokerage fees. Hence it is an essential factor while considering to order a trade. The brokerage fee may also increase as per the volume of transactions. Sometimes it depends on the broker, they may not charge extra brokerage for high volume of transactions. 

Other Charges That Affect Trading Cost

Here are some other charges that are included in the trading cost:

Account opening charges: There are brokerage firms that may charge you an account opening fee as well.

Securities Transaction Tax (STT): This charge is applicable to the total value of assets that are benign traded. It includes the assets like shares, bonds, and other equities that are listed on a renowned stock exchange. The charges are applicable for every trade of shares and regardless of the profit made from it. When trading equity delivery, it is charged as above on both buy and sell sides. But when trading intraday or Futures and Options (F&O), it is charged only on the selling side.

Commodity Transaction Charges: CTC or Commodity Transaction Charges are taxes that are applicable to commodity derivatives.

Stamp Duty: Government of India charges stamp charges as per the Indian Stamp Act of 1899. It is for transacting the instruments in the stock exchanges and depositories. 

Goods and Service Tax (GST): All investors are liable to pay 18% of the transaction and brokerage charges, as goods and services tax to the union government. 

SEBI Turnover Fees: As the name indicates, this fee is charged for any transactions within the stock market to the regulator of the stock market, the SEBI (Security Exchange Board of India). 

Annual Maintenance Charges (AMC): It is to be paid by the investors that are holding a demat account for the regulatory services and maintenance. Some depository participants may offer you AMX-free accounts also. 

In addition, you can also join SEBI registered telegram channel to subscribe to SEBI registered experts for the best intraday trading and bank nifty option strategy.

Final Word

You can easily calculate the amount you have to pay for a specific trade using a brokerage calculator. These calculators are easily available online. In these calculators you only need to enter the quantity, purchase price, and selling price of the securities. And then select the segment accordingly to get the required outcome.