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 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 who should you choose? The answer depends on a host of variables both qualitative and quantitative.
Qualitative factors are usually a little hard to asses 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-brokers.
Brokerage.
It’s a recurring cost and can potentially draw down returns. Every player claims that his brokerage is the lowest or a t least promises to charges the minimum once a 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 percent for a quarterly volume of less than Rs. 10 lakh and 0.25 per cent for an amount in excess of Rs. 5 crore.
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 the quarter. While 5paise.com has the lowest brokerage 0.25 per cent on delivery. Angel Broking offers the lowes0.02 percent on intraday trading.
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 percent 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 for tow months. If one trades with 5paisa.com for the same volume, the brokerage amount will be Rs.2500( at the rate of 0.25 per cent brokerage). So, at this volume, Reliance Money is higher than 5paisa.com’s brokerage for investments less than Rs. 2 lakh.
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 , but do not hold a demat account with one company and 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, Amondz, 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 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 on the online domain and involves paying only 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 from 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 favorites stocks to buy stock to buy, hold or sell thought the Net as well as SMS.
Apart from this, a relationship manager appointed who works and 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, brokering 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 (STT) and service tax (including education cess 3 per cent) which amount, respectively, to 0.125 percent of the transaction value and 12.36 per cent of the brokerage amount. These also raise the cost of the trade.
The speed and reliability of the broking website are also crucial in the choice of a Net broker. Brokers who score low on these counts may have slightly lower brokerages, but an infrastructure that is not able to handle copious trade volumes is a liability. Like in the old west, the slow die first in online trading. So make sure you’re quick on the draw.
YOU MUST KNOW
1. Brokerage is a recurring cost. Higher trading volume slabs attract lower brokerage. You’ll also have to pay an annual maintenance charge.
2. Some brokers insist on a minimum transaction volume and charge their lowest brokerage for it.
3. Opt for the same depository and trading body to avoid delays in settlement of shares and cash.
4. Margin trading could attract higher brokerage than regular transactions.
5. Online brokers provide regular updates on market favorites.
6. 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.
7. The broker’s infrastructure should be able handle large trade volumes.
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