Options Trading has gained essence in previous few years. Increase in number of liquid options contracts and more number of strike prices has actually created unlimited scenarios for traders. However, it has become more and more difficult to create profits with increased market efficiency. The choice of broker thus become critical. Let us see some of the parameters for the choosing your best partner while trading in Options.
Brokerages
Typically, brokerage rates in options are charged on per lot basis which means for every buy or sell of a contract, the broker will charge you a fixed amount. This amount vary in a very broad range and in some case also has a percentage parameter also.
Normal brokerage rates
Rs.50 or 1% of the premium value, whichever is higher.
This is the standard rate normally applied to all contracts with most of the Online brokers like ICICI direct, ShareKhan. It means that if you are buying a Nifty contract at a premium of Rs. 100, you need to pay Rs.50 {higher of Rs.50 or Rs.25 (Rs.100 X 25 X 1%)}. Also if your buying 2 Nifty or 5 Nifty in a single order, you will pay Rs.100 and Rs.250 as brokerage. You may negotiate these brokerages charges basis your trading volumes.
Discount Brokerage plan
Most of Discount brokers in India like Zerodha, TradeJini, Upstox are charging Rs. 20 per executed order. Here irrespective of your trading volume or quantity of Nifty per order, they charge a single rate. So whether you buy 1 Nifty or 5 Nifty contracts, you need to pay Rs.20 per executed order. Hence, the maximum brokerage that you pay is Rs.20 which reduces as your quantity per order increases.
Fixed Monthly Brokerage
Brokers like RKSV has launched a Pro Plan and Ultimate plan, where they charge a fixed amount of Rs.3,999 per month for unlimited trading in Equities and Derivatives. Similarly, they charge 2,999 for commodities and 1,999 for Currency derivatives. So if you are a Nifty trader and trades more than 200 lots of Nifty in a month or say 10 lots of Nifty in a day, it becomes the best plan for you to choose. Important to note that here 200 lots are 100 lots buy and 100 lots sell, so effectively if your buy and sell more than 5 lots of Nifty, it is the beneficial proposition in terms of low brokerages.
Platform
With upgraded technologies with exchanges, most of the brokers are offering exchange platforms. However, brokers like Zerodha has shifted to their own platform, Pi which also offer a facility of Algo trading without any extra costs. While most of brokers are providing the platform free of charge, however few are still charging some smal cost for high end software.
Margin
All the brokers are bound by regulator to charge prescribed margins. So if someone say that they offer better margins in derivatives, never believe them. They may vary exposure only in intraday trading in cash market and not derivatives. All the more, I would say that you should not even ask about this as over leveraging is non compliant and very risky for your portfolio.
RMS/Operations
All brokers provide you with online backoffice facility and it is not a differentiator any more.
Conclusion
My take would be to give a big weightage on the brokerages as this is a make or break parameter even for your trading. If you will have a low breakeven point, you may exit faster as compared to a situation where high brokerage will force to stay longer in the market and wait for bigger movements.
