Anytime that you buy and sell financial instruments as a day trader, you incur certain charges. One big charge in intraday trading is the brokerage fee. The amount you are charged varies depending on the type of broker through whom you carry out online share trading.
Day traders in India can choose from among two types of brokers: (1) traditional or full-service brokers and (2) discount brokers. While you can do intraday trading through either type of broker, an important step in intraday trading for beginners is understanding the differences between the two types.
Traditional or full-service broker: This type of broker provides all-round online share trading support to the day trader. They furnish you with market insights, research findings, and trading tips, and even help with your financial planning. Because of the wide range of services rendered, the brokerage fee tends to be high. An average trader could pay brokerage of anywhere between 0.03% and 0.05% plus a small transaction fee.
Discount broker: Such brokers provide only the bare-minimum support to traders. They usually do not give investment advice. But they do maintain libraries with market research data and other educational resources for traders to keep learning. Most discount brokers charge a fixed flat rate on each transaction. The amount is usually much lower than with full-service brokers.
If you are unwilling to shell out the extra amount in the form of brokerage, you could start trading with a discount broker. Just remember that you will then need to do much of the associated research work on your own. Seasoned traders may benefit from associating with a discount broker. But if you are new to intraday trading, it may be a good idea to open an account with a traditional broking firm like Kotak Securities which provides a range of value-added services.
Apart from the brokerage, intraday traders incur a number of additional charges. Let’s find out about these other expenses.
- Securities transaction tax (STT): The Government of India charges STT on every equity sale. The tax rate is 0.025% of the transaction cost. The broker collects this amount from the trader and sends it to the tax authorities.
- Regulatory fee: The Securities and Exchange Board of India (SEBI) is the regulatory authority for all share trading in India. In 2007, SEBI introduced a fee to cover its own expenses. The SEBI fee applies to all trades and is around Rs 20 per crore of transactions. This works out to about 0.0002% for each equity transaction, whether delivery or day trading.
- Transaction charges: The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) earn revenue by charging a fee for all transactions taking place on the exchange. The NSE charge is 0.00325% of the transaction value of each trade, while the BSE charge is 0.00275% of the transaction value.
- Stamp duty: Even in online share trading, traders may have to pay stamp duty to the government. However, this particular tax varies by the state one resides in as the levy is made by the state government.
- Goods and Services Tax (GST): Since July 2017, all intraday traders have to pay 18% GST on the total transaction cost, which is brokerage plus other taxes. The broker collects the amount from the trader and sends it on to the government.
Take all these expenses into account when formulating your intraday trading strategy. By factoring in the actual costs, you should be able to develop more accurate estimates of the profit potential of different trades. Finding success in the stock market is not easy. But diligent and detail-oriented day traders know that cost estimation is an essential skill for making profitable trades on the stock exchanges.