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YOUR TRADING COST
There is
no denying the fact that earning from stock market is an art, not just
speculation, forecasting and analysis. Whether you are a retail investor or a
big fund, one question you should ask yourself is “what
is your trading cost”?. How much part of your earning are you
passing on to your broker in
the form of commissions because it really affects your “profit
margin”.
If you are already familiar with stock market, there is a small homework for
you. Check out the contract
note you
have received from your stock
broker. Or else, if you plan to enter into stock markets and
seeking for a broker, exercise your mind a little to know the net brokerage
being charged by your broker and study the various
commission components. The reason is simple; the amount you pay to
your broker may make difference your winning or loosing in the trade.
Confused??…It is a common mistake that novice traders execute trade assuming
they are earning atleast meagre
profit margin, but if all the components including brokerage,
taxes, and stamp duty are
accounted for, the profit margin comes out to be negative. Isn’t it strange?
Yes, so we are here to understand the computation of the net trading amount you
pay to your broker.
RATES OF BROKERAGE
There are many brokers
charging different rates of brokerage. For example, ICICI
Directcharging @.75% and HDFC charging @ .5% of trading amount.
However the net trading cost is computed as below:
Trading cost =
Brokerage + STT + Stamp duty + other charges
So in addition to brokerage, there are below costs accounted in net amount:
1.
STT – Sale transaction tax is
imposed on the sale/purchase of securities by retail/institutional investors and
is charged on total turnover (cost of each share * no. of shares). For delivery
of shares it is charged at .125%. For intraday selling of shares, it is charged
@.025%. For buying, there is no tax for intra day trades. Currently government
is under consideration to remove/reduce STT because since it was introduced in
2004, the cost of transaction of trades has drastically increased. This leads to
loss in business as Indian markets are becoming less competitive compared to
other emerging markets.
2.
Stamp duty: Stamp duty is also charged on total turnover. For
delivery of shares it is charged at .01% and for intra day it is charged at
.002%.
3.
Other charges: it includes below component:
a.
Transaction charges: For trading of shares at NSE, it is charged
@ 0.0035% while for BSE, it is charged @ 0.0034%.
b.
SEBI turnover charges: For equity transaction, this remains NIL
but for derivative transactions, it is charged @ 0.0002% of total turnover.
c. Service
Tax: Service tax is charged on all the components
So net
brokerage will be calculated as
below:
Net brokerage =
Brokerage + STT + Stamp duty + Other charges
So next time you trade, try to find out how much earning have you shared with
your broker. Happy trading!!
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