Lower brokerage helps traders

Entities that don't need research or advisory and have heavy volumes will benefit from these schemes

Investors who are trading with IIFL are finding themselves is a sweet spot. The brokerage house has introduced the lowest trading rate Rs 9.99 per trade. In addition, it is also prepared to do away with the brokerage fee completely to attract more clients. Many brokerages have already been doing such deals, but one has to negotiate hard with them.

For retail investors, the brokerage fee is usually 0.25 per cent to 0.5 per cent of the transaction value. For high networth individuals, it is at 0.1 per cent. In other words, for a transaction of Rs 1 lakh, the brokerage would be between Rs 250 and Rs 500 for the retail investor. In such circumstances, IIFL’s flat fee is extremely tempting.

But before getting enthused about it, retail investors should know that there will be charges for additional services like research and advisory service, they will have to subscribe to the regular scheme in which the charges are higher. In other words, this product is meant mostly for the savvy investor who will bring volumes to the brokerage.

This is a popular trading method in developed markets where brokerages are able to sustain by the sheer size of the volumes.“The flat fee model is for the savvy investor, who knows what he needs to buy and sell. Or, it is meant for proprietary, algo and arbitrage traders or portfolio management services as they do their own research but are in need for an efficient and fast platform only to execute their trades and seek a low cost structure,” explains Amar Ambani, head of research at IIFL.

In addition, retail investors trading in stocks directly or through their advisors are anyway advised not to trade too much in the market because they run the danger of timing the market. There are a number of online players as well who have entered the market with zero brokerage schemes such as Zerodha, SVLNS Financial Services, RKSV and so on. Under a zero brokerage model, if your broker charges a flat fee of Rs 20 per trade, you will pay just Rs 40 for two trades — buying and selling.

Says Nithin Kamath, founder & CEO of Zerodha, “Zero brokerage is not really zero. Under this scheme, we charge a flat fee of Rs 20 per trade irrespective of the transaction volume and underlying asset – equity, commodity.” For lower ticket transaction, the cost structure is tweaked a bit – 0.01 per cent or Rs 20, whichever is lower. For transaction in the derivative segment, the cost is fixed at Rs 20 per trade as the minimum lot size is Rs 2 lakh, Kamath adds.

The good part of zero brokerage is that you don’t need to worry about the size and number of trades you place. Hence, it is very helpful for intra-day trades. It lowers your break-even point and increases the probability of a trade being profitable.

Feroze Azeez, director & head – investment products at Anand Rathi Financial Services says that zero brokerage offers are usually for a fixed time period — four to six months. Once brokerages get a good volume, they may revise the cost structure.”

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