Whenever you are trading in stock market, you are paying a fee to your stock broker popularly known as ‘brokerage’. Traditionally brokers charge this brokerage as a percentage on the turnover value which normally ranges from 0.01% to 0.05 % for trading and 0.1% to 0.5% for delivery turnover. But when you agree with these charges normally sign across a brokerage plan which also has a fine print on minimum brokerage per share or per trade or per contract note.
What is Minimum brokerage
Minimum brokerage is a slab that broker charges on your trade irrespective of your normal slabs provided your transaction parameter are lesser than a certain slab. This is a kind of hidden cost, that broker levies to ensure his minimum revenue from every transaction from yours. These charges, though looks small but actually put a huge dent on your ledger. Also they increase the break even point for your overall trading/
Normally, Stock brokers charges adopt the following three ways
1. Minimum brokerage per share
This is the type where higher of the %age or minimum slab in paisa is applied. Let us understand this with an illustration. Let us assume that a client is levied with 0.05% as normal trading brokerage and the minimum brokerage per share is fixed at 5paisa. Various scenarios are listed in the table below.
Brokerage amount
Normal rate Minimum brokerage Brokerage charges to you
For buying 1000 Share of Rs. 200 each 200*1000*0.05% = 100 0.05*1000 = 50 100
For buying 1000 Share of Rs. 100 each 100*1000*0.05% = 50 0.05*1000 = 50 50
For buying 1000 Share of Rs. 50 each 50*1000*0.05% = 25 0.05*1000 = 50 50
As we can see, that the trader gets charges higher value if the share price is less than Rs. 100. The lower will the price, the higher will be the brokerage as a percentage. So per share on a Rs. 20 share will be 0.25%.
2. Minimum brokerage per Order
It is the similar concept however instead of per share, the value is implemented upon each executed order. Typically, bank brokers apply these minimum brokerage slabs as Rs. 25 per order or 2.5% whichever is less. This implies that if your brokerage for a order is just Rs. 5 or 10, the broker will charge you with Rs 25. Since, as per SEBI guidelines, brokerage cannot be charged above 2.5%, the lesser of Rs. 25 or 2.5%of turnover value will be charged.
Illustration
A Intraday trade of Rs. 10,000 at a brokerage slab of 0.05% will make a brokerage value of Rs. 5 only. So a minimum brokerage of {lesser of Rs. 25 or 2.5% of 10000} will be charged. Now 2.5% of 10000 is Rs. 250, so Rs. 25 will be levied. Thus a trader will end up paying Rs. 25 instead of Rs.5 on every such trade.
3. Minimum brokerage per contract note
This is again applied brokers either solely or in conjunction with any of the above. The basic logic for this type of brokerage is to meet the courier expenses for sending contract note. So if your brokerage on a given day in ay segment is lesser than Rs. 40 or 50, then the incremental amount will be levied as admin charges.
In certain cases, especially in case of discount brokers, they have actually exempted clients with these charges, if they opt for digital contract notes. However, many brokers are just charging this to extract an extra penny out of your pocket with a steep slab of Rs. 50 per contract note.
So next time, when you see you contract note or ledger, please check for such charges and negotiate with broker, if your really want to. Another option is to switch to a discount broker and save on real money.
