Selecting a stock broker: Finance Trading Times

Selecting a stock broker

This is part II of the article: How to select a stock broker . Please read the first part of this article before continuing with this part

Minimum Brokerage per share:

This is again another important point to notice. A broker like IL&FS charges minimum 10 paisa per share. A friend of mine, who used to trade in penny stocks, was unaware of this. He bought a penny stock costing 10 paisa and the buy stocks order was executed with 100,000 shares costing him 10,000 Rs. When he received the account statement, he observed that he has been charged 10 paisa per share as buy price + brokerage of 10 paisa per share + Service tax + Securities transaction tax. Ultimately, his buy price came to somewhere around 23 paisa per share, more than double of what the actual buy price was - also due to rounding of numbers. So for his stock purchase to be in profit, he required the stock to atleast cross 23 paisa, i.e. more than double the stock price.
That was not all. The same brokerage applied to sell orders as well. Hence, the required sell price was expected to come to more than 45 paisa, for him to just get back his invested money. It means the market price of his penny stock should increase by 4.5 times or 350% rise. Do we expect this to happen? He learnt it the hard way.
So always ask the broker how much is the minimum brokerage you charge. Like ICICI may have a 1 paisa per share brokerage, but it charges minimum 25 Rs. as brokerage on each order.

Minimum Deposit required at the broker:
Another very important point. The money with the broker does not earn any interest. So the more deposit you give him, the more interest you may loose.

Demat Charges
How much demat charges you have to pay? Does it depend upon the number of shares you hold? No. of different stocks you hold? Are there any minimum quarterly charges that you need to pay. While making profit loss calculations, we all tend to ignore these charges, but they eat up majority of our profits.

Call n trade charges:
Along with the online access, some brokers allow you to call them on the phone and place trading orders. In case you don’t have internet access, then you may like to place orders on the phone. However, they may charge you for that. Ask them how much is the charge per call? Are there any minimum no. of calls free? Is there any varying rate of charges?

Does the broker offer you a toll free number to place order
You may end up holding for long time and increasing your phone bill, just to place your order. This does not show up in your profit/loss calculations, but is an ultimate loss to you.

Response time of website, on hold time on the phone
This should be another crucial factor to notice. If the markets start going down, within a few minutes your portfolio may be in big loss. The website of the broker should have good response time to hold such traffic. The telephone support should have large number of order takers to accept your order. Otherwise, if you want to sell in a falling market to cut your losses and you are put on hold for long time or the website goes down, then you end up on the loosing side.
The best way to know is to ask, ask and ask – your colleagues, friends, other traders – collect sufficient feedback before finalizing a broker.

Just to quote an example as indicated by Siddhartha in the comments of my previous post, ICICI charges 75 bps, Indiabulls charges only 25 bps – How can there be so much difference in charges?

The reason is quality of service and facilities. For example, you have a toll free number for Indiabulls, but yet there charges are less. The reason may be long on hold times or charges they may take. Website of ICICIdirect and its speed and uptime may be much better than that of India bulls. The biggest advantage of ICICI is that it has both depot and Nostro facility, so you don’t loose any interest on the amount that you keep with them. For Indiabulls, you don’t get any interest on the money you deposit with them. Also, you can easily transfer money from your bank account to your brokerage account. You can do the same in Indiabulls too, but you will then be directed to your banks website, hence there is a risk.
For example, when I book railway tickets online through irctc website, I pay through my internet banking account. After selecting the journey details, I am redirected to my bank’s website. Once I confirm my payment, I am again brought back to irctc website. Several times it has happened that I made the payment from my bank, but it did not reach irctc. The result, tickets were not booked, yet money was debited from my bank account. Then I have to follow up with customer service of irctc to get my money back and again book the tickets afresh. Entire refund process takes 4-5 days. Same may be a case with brokers which do not have depot and nostro facility together.
There can be several other factors that I may be not be aware of completely.

A good initiative would be to start by writing your experiences with your respective brokers in the comments section of this article. This way, it will be easy for you to get a collective feedback about all the various stock brokers – ICICIdirect, Indiabulls, 5paisa, IL&FS, Religare, RelianceMoney, etc. etc.

Just quote some sentences about plus and minus of your broker, and soon we can have some good amount of feedback to decide what’s good and what’s bad. That will really help in the purpose of this site. Table of Contents
Have Comments or Questions? Please post them as comments using "Post our Comments" link below. Your queries will be responded for free in 24 hrs!

13 Comments: Post your Comments

Sings said...(on 3 January 2008 at 00:17 )  

I am having my account with religare.They provide the interest for the amount what we have in our trading account.

Vijay said...(on 3 January 2008 at 00:59 )  

This is again a great article.
Let me start with sharing some feedback about my broker.

I am with ICICIDirect. They rip you off your money because of really high charges, but as Shobhit mentioned they have excellent level of services.
Also, you earn interest but only on the money that is not alloted for trading. If you allot money for trading, then you dont get intrest on it.

I wish I could get a more reliable but a bit economical broker with similar level or services.

Anyone wants to share feedback about others? Motilal Oswal, AnandRathi, or newly started Religare or Reliance money?

Thanks, Vijay

Siddhartha said...(on 3 January 2008 at 05:22 )  

Thanks a lot, Shobhit.

I still don't (yes! I admit it! I don't, even in this day and age!) have an online trading account, and was trying to decide between Sharekhan (which most of my friends use) and ICICI Direct (which to my knowledge just one of my friends does--and this guy has no idea why he continues paying more, except that he's a staunch follower of Newton's first law!).

That Nostro bit's cool. I suppose THAT is where ICICI Direct scores over Sharekhan. So it's NOT such a no-brainer after all! (I was almost sold on Sharekhan earlier, before hearing about this Nostro stuff and the additional interest that gives me.)

I guess I'll do some more "research" before finally committing. I'll share what I get (if anything) here. And I'll look out for what folk have to share here as well.

Vijay, would you say that's the only thing you dislike about ICICI Direct, that they're costlier? Otherwise you're OK with them?

Siddhartha said...(on 3 January 2008 at 05:33 )  

Hey, just a thought: would this be another plus for ICICI Direct over Sharekhan, that it is likely a 'sturdier' entity than Sharekhan, and less susceptible to folding up?

My friends who trade with Sharekhan (a few of them anyway) just now pooh-poohed my suggestion, and countered by claiming at least a quarter-pedigree (read: firang parentage) for Sharekhan in the form of Citi, but I still have my doubts. I mean, they're called Sharekhan for God's sake! (Although I suppose people said the same some years back about Yahoo! and even the big M!)

Whatever, does that make sense? That ICICI Direct is a safer broker than Sharekhan because ICICI is more "solid" than SSKI?

Andy K said...(on 3 January 2008 at 05:58 )  

Hi Shobhit
A very Happy new year to you and all the readers of our blog (i feel i am part of your blog so. our blog).

Should we really bother about Brokerages?

I do lots of experiments in market with good amount of money, Taking loan for trading/investing, short term, long term..all sorts of experiments i do and i like doing that specially when Shobhit explains certain things neatly & nicely. like Investing in IPO, Mutual Funds etc...

So These days I have decided to Invest/trade with some goal. what is that?
This year my goal is to beat the Bank rate. 10%. what is required to beat the bank rate? just 0.84% or more returns per month.

I decide to do only one transaction per month that too in Cash not in Margin or F&O.
so if i have Rs.10000 with me to invest i should get 0.84% returns per month. I use ICICI so i will pay Rs.200 i.e.2% in brokerage, for buying Rs.100 & selling Rs.100 and in the return i get Rs 84 per month. I manage to do this for all 12 months. At the end of year i would have Rs 1008 plus my principle of Rs.10000 (If one can't make 0.84% from stock market per month then Stock market is not one's cup of tea) so every month i pay Rs 200 in brokerage so total Rs 2400.

What is wrong in that?

My goal is beat the bank rate. i don't bother how much returns market gives in a year. Market can give 200% returns in a year. but i am not competing with the market but competing Bank rates. Broking is broker's business, they are doing that.. When we put money in FD@ 10% do we ask banks that why they lend that money @12-24% ? NO. Because taking deposits at 10% and lending that money @24% is their business. we get our desired returns out of market that is important & enough for us.

If i have some good knowledge about market, if i have good stock picking skills, patience and discipline (no mater how good is the stock, get 0.84% and come out) then i can even manage to get 1% return per month on my 10k principle i.e. 100pm Rs 1200 per year..and in world no bank gives 12% rate in these days. if I maximize the monthly returns by doing one buy-sell trade per week and manage to get 3% monthly, i get 36% yearly..yes that too paying whatever brokerage they charge. (I assume standard 1% brokerage). I should not worry about those brokerages.

Because we are here to earn money which MAY not be earned by Bank FDs.

I am actually doing this type of experiments with my good amount of money and happy to say, i am nowhere in loss but I managed to get more than what i thought i would get yearly returns..

Also i am shareholder of those broking companies, who are charging me so called high brokerage. :) because they earn money, they make profit. ultimately i make profit being their shareholder.

thanks
Aniruddha

Andy K said...(on 3 January 2008 at 07:14 )  

Hi SHobhit
I have not considered Inflation, Capital gain tax in above example.

Sorry for gobbling up your blog space. :)

thanks
Aniruddha

Indian Equity Invetment Guide said...(on 3 January 2008 at 08:00 )  

Hello friends,

As far as I think, ICICI direct is very costly, so sharekhan is the best one considering everything. I hold an account with sharekhan and everythings fine.

Abbhi said...(on 3 January 2008 at 10:00 )  

I use icicidirect and reliancemoney.

Reliancemoney is good , brokerge is similar to prepaid.
pay 500rs, trade upto 5 lakhs per year.
and security tax(we need to pay).

Vishal Raina said...(on 3 January 2008 at 21:33 )  

Hi,

I am with ICICI and I guess Shobhit and others have already given sufficient feedback about ICICIDirect brokers.
But I too feel that they really suck your money for the services taht they charge.

Unfortunately I have to go with them.

Can Anyone share some feedback about sharekhan and IL&FS?

Thanks,
Vishal

Krishnanand said...(on 3 January 2008 at 22:53 )  

I use ICICI-DIRECT for long term holdings and hence not concerned about the brokerage fees etc .Also in this my amount never remains idle and also earns some interest as it is my own ICICI account .

For short term /intra day trading I use the off line services of SBI CAPS SECURITIES .It is not very expensive and I use its services weekly once .

Siddhartha said...(on 3 January 2008 at 23:49 )  

Thanks, guys, for the inputs.

Would you be able to throw some light on demat accounts as well? Is it true that it's illegal to have more than one demat account?

I have an old demat account that I haven't ever used (and the trading account's long withered away unattended), but do I need to ferret out that old demat account and attach my new trading account (which I'm hoping to open soon) around it, or I can go ahead and simply open a fresh one?

I've spoken to some people, and each has a view on this, but no one seems to KNOW definitely. Can anyone here (or you yourself, perhaps, Shobhit?) help me with this?

Sandy said...(on 4 January 2008 at 04:01 )  

Hi ,

I am Using 5 Paisa .. Trust me Guyzz ealier till few days back .. from last 2yeasr or so.. they had this brwoswe based interface which sucks big time .. but now they hadaarmed each investr with a Trading Software of theirs with no extra cost ..

hence from then thing had improved .. or shud I say gud !1

Harsh said...(on 8 January 2008 at 19:57 )  

Hi Siddhartha,

AFAIK it is not invalid to hold more than 1 demat account, as long as its declared while declaring ur income, e.g. while filing taxes.

Anyone can correct me if I am wrong.

Wish you all happy and fruitful trading and investing activities with safety! = = = Post a Comment

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