What is a low brokerage trading account?

What is a low brokerage trading account?

by Nutan Gupta Last Updated: Dec 11, 2022 - 07:42 pm 199.8k Views
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If you trade in the share market, you will surely know the percentage of commission your stockbroker charges for every transaction. An investor is bound by law to give a certain predetermined percentage to his/her stockbroker, called brokerage on every transaction even if it results in a loss.

These brokerage charges resulted in reducing the profits of the investors by a huge margin. To tackle this problem, better brokerage firms came up with a trading account with a low brokerage.

What is a low brokerage trading account?

A low brokerage trading account is an online trading account which charges the lowest amount of brokerage, probably lowest in the market. Many good online brokerage firms have come up with a brokerage amount which is very low when compared to other traditional brokerage firms.

When you open a low brokerage trading account, you won't have to pay a high commission on all of your transactions. In most cases, a low brokerage trading account means that you are charged a low flat fee on your transactions rather than paying a percentage of your profits to your stockbroker.

Low brokerage trading account vs. a commission trading account

If you trade through a trading account having a commission system, you always end up paying more to your stockbroker as the commission percentage is generally high.

Look at the following example:

Scenario 1

You buy 1000 shares of a company ABC at Rs 500 per share through a commission based trading account. If the commission percentage is 0.50 percent, you have to pay a minimum brokerage of Rs 2500. This will decrease your profits by 2500 or will add to your losses by the same amount.

Scenario 2

You buy 1000 shares of a company ABC at Rs 500 per share through a low brokerage trading account charging a flat fee of Rs 10 per transaction. Whatever your profits or losses, you will only have to pay Rs 10 instead of Rs 2500.

This difference in the amount of brokerage you pay increases with the size of your transaction. The larger the order, the higher is the commission. But with a low brokerage trading account, you only pay Rs 10, irrespective of the size of your transaction.

Benefits of a low brokerage trading account

  • You pay a flat fee or very low brokerage instead of paying a huge chunk of your profits.
  • A low brokerage trading account doesn't increase your burden by a hefty margin in case there is a loss in your transactions.
  • You don't have to calculate your commission every time you make a deal in the share market

How to open a low brokerage trading account?

There are only a few good online brokerage firms that offer a low brokerage trading account. You will have to hire an online brokerage firm offering the facility of a low brokerage trading account.

Once you hire a brokerage firm, you will have to fill an account opening form and attach certain documents for identity and address proof.

After all the formalities are done, you can start trading in the Indian stock market without worrying about paying a huge commission on your trades.

You can open an online trading account in 5 simple steps by visiting our website 5paisa.com. We charge a flat fee of only Rs 10 per transaction which is the lowest you will find in the entire market. 

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