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Online trading is a boon for those who want to avoid the hassle of personally dealing with a broker. It's an Internet based trading facility that allows you to buy and sell shares through an online broker.
In the real world (as against the cyber world), you talk to your broker over the phone or personally (you could even fax him) and, accordingly, he buys and sells shares for you.
Once you join an online trading site, you can buy and sell through the stockbroker's Web site.
Yesterday, we checked out the responsiveness of online broking firms in Want an online stock broker?
Today, we tell you what costs to expect when dealing with them.
Account opening costs
All players charge an account opening fee; this is a one-time payment.
Generally, none of them charge an annual account maintenance fee since they make their money via brokerage. This is the fee they levy every time you buy or sell shares.
The fee varies; for instance, ICICI Direct charges Rs 750 while India Infoline charges Rs 425.
When to sell your shares
Types of accounts
Sometimes, the cost of opening the account is based on the software provided.
Most players offer two types of accounts: a browser-based one and a software based one.
5 paise calls the latter TT5 (Trader Terminal 2005), Motilal Oswal and InvestSmart refer to it as the EXE package, India Bulls terms it Power Indiabulls.
The software-based option is much quicker; you don't have to refresh the page and wait for it to get uploaded, which is what happens in the browser-based option.
The software option offers a wealth of information by way of intra-day charts (this tracks the price movement of the stocks), technical analysis (which gives you an idea of where the price of the stock is headed based on its price movement till date) and a host of other benefits.
Now, if you are trading (buying or selling shares) from your office, it may not make sense to opt for a software-based trading account. This will entail downloading the software on your PC. Besides, it will not work on a LAN, behind a firewall or behind a proxy (most offices use these options).
In this case, it makes sense to opt for the browser-based option. If you are trading from home on the other hand, consider the software based option.
In some cases, it may be more expensive to opt for the software package. For instance, Motilal Oswal charges Rs 1,500 for the EXE package but only Rs 500 for the browser based account. Opt for it only if you are an active stock market trader and need to capture quick price movements.
If you are an investor who buys shares, holds on to them and sells them at a later date, you could opt for a browser-based package.
Finally, if you travel a lot, you will not be able to access your software based trading account since it is downloaded on your PC. It is targeted at active stock traders who constantly buy and sell during the day.
Lessons in how to pick a stock
Brokerage
Some will give you a direct percentage while others levy a fixed amount per Rs 100. ICICI Direct charges 0.75% per transaction and India Infoline, 0.5%. Sharekhan charges 50 paise per Rs 100 and Motilal Oswal charges 40 paise per Rs 100.
When you compare the brokerage charges of different firms, always do so in percentage terms.
Let's say your transaction was worth Rs 100. ICICI Direct will charge you 0.75%, India Infoline 0.50%, Sharekhan 0.50% and Motilal Oswal 0.40%.
Also, check if the Service Tax and Securities Transaction Tax is passed on to you or if the broker picks up a portion of the tax.
A Service Tax of 10.2% is levied on the brokerage while a Securities Transaction Tax of 0.1% is levied on the total trade value.
Confused?
Let's say you sold shares worth Rs 20,000.
Brokerage @ 0.75% on Rs 20,000 = Rs 150
Service tax @ 10.2% on Rs 150 = Rs 15.3
STT @ 0.1% on Rs 20,000 = Rs 20
Total payments made by you on Rs 20,000 = Rs 185.3
The above brokerage is for delivery based trades and decreases for intra-day trades.
A delivery based trade is when the investor buys shares with the idea of holding on to it and the shares are actually delivered to the buyer. Basically, it is a trade where the transaction ends in actual delivery of the stocks.
Intra-day trades are when you buy and sell the same stocks during the day. The transaction does not end in actual delivery but it is squared off. The net difference is paid by/ received by the customer at the end of the settlement.
To understand how day trading works, read about a day trader's experience in Greed = Loss at the stock market.
Sharekhan lowers its brokerage charges to 10 paise per Rs 100 of transactions for intra-day trades. Motilal Oswal charges 15 paise per Rs 100 for intra-day trades. India Infoline charges 0.10% for such trades. ICICI Direct keeps the rate constant but lowers the STT to 0.02% for intra-day trades.
Don't forget to check the minimum amount. ICICI Direct will levy the brokerage subject to the actual rate or Rs 25, whichever is higher. In other words, you must pay a brokerage of at least Rs 25. It drops to Rs 15 for intra-day trades.
With India Infoline, the minimum brokerage will be five paise per share.
Motilal Oswal asks for a commitment from the individual for a minimum brokerage of Rs 500 per month.
I violated every investing mantra and made money
Depository fee
Gone are the days when shares were held as physical certificates. Today, they are held in an electronic form in dematerialised accounts, commonly referred to as demat accounts. To maintain your demat account, you will have to pay an annual fee.
ICICI Direct charges Rs 450 per annum as a depository fee; India Infoline charges Rs 250.
Sharekhan charges nothing for the first year, but charges Rs 500 for every year thereafter.
Buying shares for the first time?
When deciding how to make your pick on monetary considerations, look at all the factors: account opening fee, annual demat fee and brokerage.
If you plan to trade actively, you should look at brokerage much more closely. The account opening fee will be a one-time payment, the demat fee an annual one but the brokerage will be ongoing.
In the real world (as against the cyber world), you talk to your broker over the phone or personally (you could even fax him) and, accordingly, he buys and sells shares for you.
Once you join an online trading site, you can buy and sell through the stockbroker's Web site.
Yesterday, we checked out the responsiveness of online broking firms in Want an online stock broker?
Today, we tell you what costs to expect when dealing with them.
Account opening costs
All players charge an account opening fee; this is a one-time payment.
Generally, none of them charge an annual account maintenance fee since they make their money via brokerage. This is the fee they levy every time you buy or sell shares.
The fee varies; for instance, ICICI Direct charges Rs 750 while India Infoline charges Rs 425.
When to sell your shares
Types of accounts
Sometimes, the cost of opening the account is based on the software provided.
Most players offer two types of accounts: a browser-based one and a software based one.
5 paise calls the latter TT5 (Trader Terminal 2005), Motilal Oswal and InvestSmart refer to it as the EXE package, India Bulls terms it Power Indiabulls.
The software-based option is much quicker; you don't have to refresh the page and wait for it to get uploaded, which is what happens in the browser-based option.
The software option offers a wealth of information by way of intra-day charts (this tracks the price movement of the stocks), technical analysis (which gives you an idea of where the price of the stock is headed based on its price movement till date) and a host of other benefits.
Now, if you are trading (buying or selling shares) from your office, it may not make sense to opt for a software-based trading account. This will entail downloading the software on your PC. Besides, it will not work on a LAN, behind a firewall or behind a proxy (most offices use these options).
In this case, it makes sense to opt for the browser-based option. If you are trading from home on the other hand, consider the software based option.
In some cases, it may be more expensive to opt for the software package. For instance, Motilal Oswal charges Rs 1,500 for the EXE package but only Rs 500 for the browser based account. Opt for it only if you are an active stock market trader and need to capture quick price movements.
If you are an investor who buys shares, holds on to them and sells them at a later date, you could opt for a browser-based package.
Finally, if you travel a lot, you will not be able to access your software based trading account since it is downloaded on your PC. It is targeted at active stock traders who constantly buy and sell during the day.
Lessons in how to pick a stock
Brokerage
Some will give you a direct percentage while others levy a fixed amount per Rs 100. ICICI Direct charges 0.75% per transaction and India Infoline, 0.5%. Sharekhan charges 50 paise per Rs 100 and Motilal Oswal charges 40 paise per Rs 100.
When you compare the brokerage charges of different firms, always do so in percentage terms.
Let's say your transaction was worth Rs 100. ICICI Direct will charge you 0.75%, India Infoline 0.50%, Sharekhan 0.50% and Motilal Oswal 0.40%.
Also, check if the Service Tax and Securities Transaction Tax is passed on to you or if the broker picks up a portion of the tax.
A Service Tax of 10.2% is levied on the brokerage while a Securities Transaction Tax of 0.1% is levied on the total trade value.
Confused?
Let's say you sold shares worth Rs 20,000.
Brokerage @ 0.75% on Rs 20,000 = Rs 150
Service tax @ 10.2% on Rs 150 = Rs 15.3
STT @ 0.1% on Rs 20,000 = Rs 20
Total payments made by you on Rs 20,000 = Rs 185.3
The above brokerage is for delivery based trades and decreases for intra-day trades.
A delivery based trade is when the investor buys shares with the idea of holding on to it and the shares are actually delivered to the buyer. Basically, it is a trade where the transaction ends in actual delivery of the stocks.
Intra-day trades are when you buy and sell the same stocks during the day. The transaction does not end in actual delivery but it is squared off. The net difference is paid by/ received by the customer at the end of the settlement.
To understand how day trading works, read about a day trader's experience in Greed = Loss at the stock market.
Sharekhan lowers its brokerage charges to 10 paise per Rs 100 of transactions for intra-day trades. Motilal Oswal charges 15 paise per Rs 100 for intra-day trades. India Infoline charges 0.10% for such trades. ICICI Direct keeps the rate constant but lowers the STT to 0.02% for intra-day trades.
Don't forget to check the minimum amount. ICICI Direct will levy the brokerage subject to the actual rate or Rs 25, whichever is higher. In other words, you must pay a brokerage of at least Rs 25. It drops to Rs 15 for intra-day trades.
With India Infoline, the minimum brokerage will be five paise per share.
Motilal Oswal asks for a commitment from the individual for a minimum brokerage of Rs 500 per month.
I violated every investing mantra and made money
Depository fee
Gone are the days when shares were held as physical certificates. Today, they are held in an electronic form in dematerialised accounts, commonly referred to as demat accounts. To maintain your demat account, you will have to pay an annual fee.
ICICI Direct charges Rs 450 per annum as a depository fee; India Infoline charges Rs 250.
Sharekhan charges nothing for the first year, but charges Rs 500 for every year thereafter.
Buying shares for the first time?
When deciding how to make your pick on monetary considerations, look at all the factors: account opening fee, annual demat fee and brokerage.
If you plan to trade actively, you should look at brokerage much more closely. The account opening fee will be a one-time payment, the demat fee an annual one but the brokerage will be ongoing.
To say that online investing has grown extraordinarily fast over the past couple of years is akin to describing Marilyn Monroe as reasonably attractive. While it may be easy to trade on the Net, finding the right online broker takes some doing.
Given that online trading is still at a nascent stage, online brokers are willing to offer many options -- brokerages that decline as volumes soar, waiver of account opening charges, access to research reports, and the facility of transacting in financial instruments through the trading website. So whom should you choose? The answer depends on a host of variables -- both qualitative and quantitative
Qualitative factors are usually a little hard to assess and largely pertain to expectations of service standards. It helps to talk to acquaintances who trade online about the website's reliability, ease of fund transfer and transaction, and the customer service quality of the e-broker, the only human interface in the entire mechanism. Nonetheless, there are some key factors that help you compare e-brokers.
Brokerage. It's a recurring cost and can potentially draw down returns. Every player claims that his brokerage is the lowest or at least promises to charge the minimum once an investor opens an account and starts trading. But this promise is contingent on the trading volumes of the investor.
The brokerage differs from company to company. To give an indicative figure, ICICIDirect.com charges 0.75 per cent for a quarterly volume of less than Rs 10 lakh (Rs 1 million) and 0.25 per cent for an amount in excess of Rs 5 crore (Rs 50 million).
The brokerage for the quarter that follows the opening of an online trading account is determined by the opening amount of investment, irrespective of the subsequent investments in that quarter.
Any amount due to either the broker or investor over and above the brokerage paid is settled every quarter and the opening amount of the next quarter determines the brokerage that will be paid in that quarter.
While 5paisa.com has the lowest brokerage -- 0.25 per cent -- on delivery, Angel Broking offers the lowest -- 0.02 per cent -- on intra-day trading (see A Comparative Look at Online Brokers).
Position traders -- investors who buy and hold securities for the long haul -- typically opt for low brokerages. Daily traders, who trade in large volumes, usually settle for what brokers call zero per cent brokerage.
This does not mean that they are not charged brokerage, but alludes to a fixed brokerage fee irrespective of turnover or up to a certain turnover for a period of time: higher the investment, lower the brokerage.
For instance, Reliance Money charges Rs 500 for delivery-based volumes up to Rs 10 lakh (Rs 1 million) for two months. If one trades with 5paisa.com for the same volume, the brokerage amount will be Rs 2,500 (at the rate of 0.25 per cent brokerage). So, at this volume, Reliance Money scores over 5paisa.com. However, the fixed brokerage of Reliance Money is higher than 5paisa.com's brokerage for investments less than Rs 2 lakh.
For onliners
Brokerage is a recurring cost. Higher trading volume slabs attract lower brokerage. You'll also have to pay an annual maintenance charge.
Some brokers insist on a minimum transaction volume and charge their lowest brokerage for it.
Opt for the same depository and trading body to avoid delays in settlement of shares and cash.
Margin trading could attract higher brokerage than regular transactions.
Online brokers provide regular updates on market favourites.
Pick the online broker with the maximum number of collaborating banks.
Check out the website's speed and reliability, ease of fund transfer, and the e-broker's customer service quality.
The broker's infrastructure should be able to handle large trade volumes.
Account opening and maintenance costs. In order to trade, an investor needs to open two accounts with the brokerage firm - a demat account to keep the shares and a trading account to trade.
If cost is an issue, you may select Almondz, for instance, since it charges only Rs 400 for opening an account (see A Comparative Look at Online Brokers), but do not hold a demat account with one company and a trading account with another since it delays the settlement of shares and cash.
Another fixed cost is the annual maintenance charge. While some companies such as Kotak Securities have a high maintenance charge, Almondz, Religare, Reliance Money, 5paisa.com and IndiaBulls charge nothing at all.
Minimum trade requirements. Some online brokers insist on a minimum transaction volume for which they charge their lowest brokerage. For instance, ICICIDirect.com has set its minimum transaction at Rs 500 and charges a brokerage of Rs 25 on it. Geojit Financial Services has not fixed a minimum transaction amount, but the minimum brokerage is Rs 20.
Margin trading. This is available in the online domain and involves paying only a proportion of the trade value upfront. Such trades could attract higher brokerage than the regular transactions.
Mostly traders, who go for intraday transactions, go for this form of trading. Investors typically invest for longer periods and margin trading is not suitable for them as brokers charge huge interest on the value of the trade that is not paid upfront.
Access to research. Online brokers provide regular updates on market favourites - stocks to buy, hold or sell - through the Net as well as SMS. Apart from this, a relationship manager is appointed who works as an intermediary between the investor and the broker, and plays the helpful tipper.
Investors need to remember amidst the daily onslaught of tips that too much trading does not necessarily translate into big bucks.
Tie-ups with banks. To trade with a broking company, you need to have an account with one of its collaborating banks. Typically, broking firms have fewer collaborations with public sector banks. Almondz scores above others here since it has tie-ups with numerous private sector banks and 19 public sector ones.
Apart from the charges mentioned above, an investor is required to pay the security transaction tax and service tax (including education cess of 3 per cent), which amount, respectively, to 0.125 per cent of the transaction value and 12.36 per cent of the brokerage amount. These also raise the cost of the trade.
Given that online trading is still at a nascent stage, online brokers are willing to offer many options -- brokerages that decline as volumes soar, waiver of account opening charges, access to research reports, and the facility of transacting in financial instruments through the trading website. So whom should you choose? The answer depends on a host of variables -- both qualitative and quantitative
Qualitative factors are usually a little hard to assess and largely pertain to expectations of service standards. It helps to talk to acquaintances who trade online about the website's reliability, ease of fund transfer and transaction, and the customer service quality of the e-broker, the only human interface in the entire mechanism. Nonetheless, there are some key factors that help you compare e-brokers.
Brokerage. It's a recurring cost and can potentially draw down returns. Every player claims that his brokerage is the lowest or at least promises to charge the minimum once an investor opens an account and starts trading. But this promise is contingent on the trading volumes of the investor.
The brokerage differs from company to company. To give an indicative figure, ICICIDirect.com charges 0.75 per cent for a quarterly volume of less than Rs 10 lakh (Rs 1 million) and 0.25 per cent for an amount in excess of Rs 5 crore (Rs 50 million).
The brokerage for the quarter that follows the opening of an online trading account is determined by the opening amount of investment, irrespective of the subsequent investments in that quarter.
Any amount due to either the broker or investor over and above the brokerage paid is settled every quarter and the opening amount of the next quarter determines the brokerage that will be paid in that quarter.
While 5paisa.com has the lowest brokerage -- 0.25 per cent -- on delivery, Angel Broking offers the lowest -- 0.02 per cent -- on intra-day trading (see A Comparative Look at Online Brokers).
Position traders -- investors who buy and hold securities for the long haul -- typically opt for low brokerages. Daily traders, who trade in large volumes, usually settle for what brokers call zero per cent brokerage.
This does not mean that they are not charged brokerage, but alludes to a fixed brokerage fee irrespective of turnover or up to a certain turnover for a period of time: higher the investment, lower the brokerage.
For instance, Reliance Money charges Rs 500 for delivery-based volumes up to Rs 10 lakh (Rs 1 million) for two months. If one trades with 5paisa.com for the same volume, the brokerage amount will be Rs 2,500 (at the rate of 0.25 per cent brokerage). So, at this volume, Reliance Money scores over 5paisa.com. However, the fixed brokerage of Reliance Money is higher than 5paisa.com's brokerage for investments less than Rs 2 lakh.
For onliners
Brokerage is a recurring cost. Higher trading volume slabs attract lower brokerage. You'll also have to pay an annual maintenance charge.
Some brokers insist on a minimum transaction volume and charge their lowest brokerage for it.
Opt for the same depository and trading body to avoid delays in settlement of shares and cash.
Margin trading could attract higher brokerage than regular transactions.
Online brokers provide regular updates on market favourites.
Pick the online broker with the maximum number of collaborating banks.
Check out the website's speed and reliability, ease of fund transfer, and the e-broker's customer service quality.
The broker's infrastructure should be able to handle large trade volumes.
Account opening and maintenance costs. In order to trade, an investor needs to open two accounts with the brokerage firm - a demat account to keep the shares and a trading account to trade.
If cost is an issue, you may select Almondz, for instance, since it charges only Rs 400 for opening an account (see A Comparative Look at Online Brokers), but do not hold a demat account with one company and a trading account with another since it delays the settlement of shares and cash.
Another fixed cost is the annual maintenance charge. While some companies such as Kotak Securities have a high maintenance charge, Almondz, Religare, Reliance Money, 5paisa.com and IndiaBulls charge nothing at all.
Minimum trade requirements. Some online brokers insist on a minimum transaction volume for which they charge their lowest brokerage. For instance, ICICIDirect.com has set its minimum transaction at Rs 500 and charges a brokerage of Rs 25 on it. Geojit Financial Services has not fixed a minimum transaction amount, but the minimum brokerage is Rs 20.
Margin trading. This is available in the online domain and involves paying only a proportion of the trade value upfront. Such trades could attract higher brokerage than the regular transactions.
Mostly traders, who go for intraday transactions, go for this form of trading. Investors typically invest for longer periods and margin trading is not suitable for them as brokers charge huge interest on the value of the trade that is not paid upfront.
Access to research. Online brokers provide regular updates on market favourites - stocks to buy, hold or sell - through the Net as well as SMS. Apart from this, a relationship manager is appointed who works as an intermediary between the investor and the broker, and plays the helpful tipper.
Investors need to remember amidst the daily onslaught of tips that too much trading does not necessarily translate into big bucks.
Tie-ups with banks. To trade with a broking company, you need to have an account with one of its collaborating banks. Typically, broking firms have fewer collaborations with public sector banks. Almondz scores above others here since it has tie-ups with numerous private sector banks and 19 public sector ones.
Apart from the charges mentioned above, an investor is required to pay the security transaction tax and service tax (including education cess of 3 per cent), which amount, respectively, to 0.125 per cent of the transaction value and 12.36 per cent of the brokerage amount. These also raise the cost of the trade.