In discounts, brokers go deep, e-brokers go deeper

Online fees fall as low as Rs 9 per trade

The battle for minimum brokerage, till now confined to full-service brokers, has spread to discount broking players (also known as online broking players). While most of the latter still charge a flat fee of Rs 20 a trade, several are offering reduced rates to attract clients.

For instance, Zerodha, which charges a flat Rs 20 a trade, recently introduced zero brokerage for delivery-based trades. SAS Online charges Rs 9 a trade or Rs 999 a month for unlimited trading; My Value Trade charges Rs 10 a trade or Rs 1,000 a month for unlimited trading. Trade Smart Online and Achiievers Equities charge a flat Rs 15 a trade, with the latter also offering the option of unlimited trades at Rs 50 a day.

(Discount brokers offer web-based platforms, without research and advice. Clients are charged a flat fee for each trade, irrespective of its value. Unlike the flat fees charged by discount brokers, most full service brokers charge fee as a percentage of total turnover. For the cash market, rates vary between 10p and 30p for delivery-based trades, and below five paise for intra-day trades.)

“We introduced zero brokerage for delivery-based trades from December to expand our investor base and attract more retail (small) clients,” said Nithin Kamath, chief executive officer (CEO) at Zerodha, which has about 100,000 clients and a daily turnover of Rs 7,000-10,000 crore.

SAS Online, a deep discount broker, opted for pricing differentiation to attract clients. “We wanted to bring something new to the market when we launched in 2013. The idea was to attract positional traders who don’t trade that frequently, as well as high volume traders, including jobbers and arbitrageurs,” said CEO Shrey Jain.

According to Vikas Singhania, executive director at Trade Smart Online, since most investors do a price comparison with full service brokers, a difference of Rs 5 or 10 a trade might not make much of a difference. That said, he feels traders who do high volumes might consider the pricing element while deciding on a discount broker.

Jain, for his part, says SAS has brought down costs from roughly Rs 3,000-4,000 a month for unlimited trades to under Rs 1,000, successfully attracting traders from both traditional and discount brokers.

Not everyone believes low pricing is a sustainable business model. “Pricing is not much of a differentiator now; what matters is product, platform and tools,” said Kamath.

He adds the current market volatility will test the staying power of discount brokers. “It’s not easy to sustain at these low costs, especially in this environment. With the markets so volatile, a lot of traders might get hurt and take a break from trading. This means brokers will have to continually add new clients to make up for loss in revenue,” he said.

Operating costs have risen significantly over recent years and discount brokers need to generate revenue of Rs 8-10 crore a year to survive, with a 30 per cent margin, say experts. Overheads for a basic set-up can cost Rs 30-50 lakh a month. Additionally, brokers might have to shell out Rs 2-2.5 crore to the exchanges as a one-time deposit.

Last year, the Securities and Exchange Board of India had rejected brokers' plea for a floor to brokerage rates. It felt the move was anti-investor. At present, broking houses are free to charge anything below a ceiling of 2.5 per cent of the total turnover.