Looking for a stockbroker? Don't go just by price, look for value

With more players moving towards lower commissions, choose a broker based on the quality of the platform and user feedback

Bank-cum-brokers tend to have higher brokerage costs. But Axis Securities recently launched ‘India, Trade@20’, a plan that charges a flat Rs 20 per trade, so as not to lose out on price-sensitive customers. Paytm Money has just received a broking licence from the Securities and Exchange Board of India (Sebi). Analysts expect it to launch an aggressive pricing model to garner market share quickly, since it enjoys the backing of deep-pocketed investors. And some time ago, Zerodha emerged as the country’s top broker by number of unique customer code (it was launched only in 2010). Even as the market as a whole moves towards lower costs, investors, especially the more seasoned ones, need to consider the offerings of a broker in totality, and not just cost, before opting for it.

Volume of transaction: A novice entering the equity markets for the first time may perhaps opt for a bank-cum-broker. These players usually have higher broking charges. They charge a percentage of the total cost of securities bought or sold. HDFC Securities, for instance, charges 0.50 per cent or minimum Rs. 25 (ceiling is 2.5 per cent of transaction value). Discount brokers, on the other hand, today charge a flat fee of Rs. 15-20 per trade, irrespective of the value of the trade. Some, like Zerodha and Fyers, charge you zero in the equity-delivery segment. “A new entrant usually has a lower volume of transaction. Hence brokerage cost is not of the utmost importance to him,” says Vikas Singhania, executive director, Trade Smart Online. A bank-cum-broker usually has an established brand name that inspires confidence in a new entrant.

But as a person becomes a more seasoned player in the market and his trading volume rises, he is likely to find a percentage-based fee burdensome. He should then consider shifting to a discount broker who charges a flat fee. This time the seasoned pro should also take a host of other factors into consideration when choosing his broker.

Stability of the platform: A trading platform should have a very high level of uptime. This means that it should stay up, and not crash, even on days when the market sees a high level of turnover. “If a trading platform goes down, or there is loss of connectivity, it can have a significant impact on traders’ gains and losses,” says Tejas Khoday, co-founder and chief executive officer, Fyers Securities. Suppose that you have a long position in Bank Nifty Futures, which you want to sell and book profits in. But you are not able to sell because your broker’s platform is down. Meanwhile, the market could go against you and you could end up losing money.

Speed of order execution: This is another crucial consideration for traders. Prices of stocks and derivatives fluctuate every second, even intra-second. The trader may hit a sell order but it may not go through that very instant. If the order is executed late, he could get a worse price. Suppose that you are doing intra-day trading and buy a stock at Rs. 100. It goes up to Rs. 105 and u sell it. If your platform is slow, by the time the order hits the exchange the price may have come down to Rs. 103, so you end up losing Rs. 2 on each scrip.

Prompt customer service: The broker you sign up with must also have an educated customer support team that understands the nuances of markets and trading. In broking, the number of customer service executives required vis-à-vis the number of clients is high. Most of the trading is intraday and short-term based. A lot of different kinds of queries come in. The executives must be able to solve issues within the duration of the phone call, and not an hour or two later. How promptly these executives are able to respond to queries can have repercussions on traders’ positions.

Brokers who respond to customers’ feedback and modify the features of their platform are also likely to offer a better experience.  

Broker reputation: Above, we have mentioned some of the criteria that are important while selecting a broker. But how do you get to get to know who offers them and who does not? “Get feedback from fellow traders. Participate in online forums where traders interact and share their views on brokers,” says Khoday. Singhania suggests going through broker reviews on established third-party review web sites like Mouthshut.com. Some brokers even offer a free trial period of, say, three days. Opt for it. Most brokers also offer free demos that you can go for.

Seven points to remember when choosing a broker

• If you are a buy-and-hold investor with low turnover, then broking cost is not a very important consideration

• You may go with full-service brokers who also offer advice in the form of research reports

• Many such brokers have now started offering Smallcases, which are a list of stocks based on specific themes that you may invest in

• But as your turnover of stocks rises, a percentage-based fee model will begin to pinch. You should then opt for a discount broker that charges a flat fee

• The going rate today is Rs 15-20 per trade (irrespective of the value of the trade), both in equities and derivatives

• Some discount brokers today even charge zero fee for delivery-based trades in the equity-cash segment

• The going rate for intra-day trading today is one-tenth of what is charged for delivery-based trade