Brokerage Calculator 101: Tips and Tricks to Optimise Trading Costs
Introduction
In the dynamic world of trading, understanding the costs involved is crucial to determining your profits from the share market. You must pay fees and commissions for all buy and sell trades. Some brokers charge higher commissions for value-added services, while discount brokers charge low commissions per trade. Choosing the right broker and trade is crucial to ensure you don’t spend much of your money on trading costs.
This blog highlights the tips and tricks for using a share brokerage calculator in platforms like 5paisa to optimise trading costs.
Overview of Trading Costs
The stock broker executes your trade orders on the exchange of your choice. The profit or loss you gain from the trade is based on real-time stock prices, market volatility, and order conditions. Regardless of whether the trade is profitable, you must pay the stock broker fees. In fact, the amount you pay to the stockbroker for every trade includes their fees and commissions.
You can increase profits by lowering trading costs. Trading costs involve multiple charges like brokerage charges, transaction charges, STT, GST, stamp duty, and other charges. SEBI has mandated all brokers to be transparent about their fee structure to ensure fair trading practices.
When you use the online stock brokers platforms, you can find a simple online tool called brokerage charges calculator that accurately estimates the trading costs. Always use this tool before making your investment decisions.
Day traders who benefit from minor price changes in the market may not use this tool extensively for every trade. However, when you make major investment decisions involving a higher transaction size, ensure that you understand the total trading costs before executing the trade.
Tips to Optimise Trading Costs
If you don’t keep track of your trading costs, it could quickly eat into your profits. You can use online stock trading platforms or the traditional method of hiring a broker to trade on your behalf. Here are some tips to optimise your trading costs:
#1 Negotiate with Your Broker
When you deal with a personal stock broker to manage your investments, negotiate with them to lower their charges and commissions. Generally, brokers will be willing to lower their rates for high-volume traders and investors. When you trade frequently or maintain an extensive portfolio, your broker will be interested in working with you at a lower commission rate.
#2 Choose Online Trading Platforms
A personal stock broker is helpful if you don’t want to do any market research and rely on another person’s expertise. However, if you like to retain control of your trading account and are interested in making your own decisions, choose online trains ding platforms. These platforms provide access to multiple trading options like stocks, futures, commodities, mutual funds, etc. With such platforms, you can easily maintain a diversified portfolio. Further, many online stock brokers also provide advanced research tools for experienced traders.
#3 Opt for Discount Brokers
Full-service brokers offer several advisory services apart from executing trades. So, you have to pay an additional charge for such services. Self-learning investors can benefit from discount brokers who charge lower fees. You can use online tools to learn trading tricks and maximise your profits.
#4 Compare different brokers
The best way to optimise trading costs is to compare different brokers. Some brokers charge a flat fee, while others charge a percentage of trade value. Depending on the volume and size of your trade, a broker charging a flat fee may sometimes be more cost-effective. Explore different brokers, understand your options, and use their brokerage calculators before choosing one. Ensure that the broker you choose is transparent about their fees and commissions.
#5 Use Limit Orders
When small price changes are essential for your trades, ensure that you use limit orders. These orders will only buy or sell stock at a specified or better price. This is useful to avoid overpaying or underselling your stock. It also limits the brokerage fee you must pay for the trade order.
#6 Avoid Churning Pitfall
Online stock brokers make money when you frequently make trades. Some brokers may encourage you to trade more frequently to charge more in brokerage. Avoid this churning pitfall and trade only based on your investment strategy. Always maintain a long-term perspective of investing in the stock market to build wealth.
Conclusion
Traders and investors can maximise profits by saving on brokerage charges. The zero brokerage calculator gives a detailed overview of the charges involved. It also shows the commissions charged by the broker. Using the calculator, investors can accurately determine the trading cost and breakeven point to decide whether or not to execute the trade. Choosing the right stock broker is the first step to having a seamless trade experience to increase profits.
FAQs
- Why do I need a brokerage calculator?
The brokerage calculator is a free online tool designed for traders and investors to compute the total trading cost before executing the trade. This calculator shows how much exchange charges, brokerage fees, taxes, and other fees are involved in executing the trade. It helps you understand the financial implications before executing a buy or sell trade.
- Which information do I need to use the brokerage calculator?
You must enter details like trading segment (equity, futures, options, delivery, intraday) and trade details (buy/sell order, stock symbol, number of shares, price, etc to calculate brokerage charges for the specific trade.
- How often should I use the brokerage calculator?
Using a brokerage calculator whenever you want to execute a new trade is better. If you already have an investment strategy, use the calculator to review the cost implications. You can make changes to your strategy when necessary.
Photo by Pedro Miranda on Unsplash (Free for commercial use)
Image Published on December 18, 2020
