Finally in 2015, Zero brokerage has become a reality in India. If you would have asked even 6 months ago whether this would be possible, the answer you broker would have given to you is “Absolutely Not”. But with the change in broking business, this has become a reality. The first broker to provide zero brokerage account is ZERODHA. They will offer zero brokerage if you trade in delivery based trades. In the time to come, you can expect some of the other discount broker to also start providing zero Brokerage.
To understand it better as how they are providing this, you have to understand the brokerage industry in India and how it works. Till 2010, most of the major brokers like ICICIdirect, Sharekhan have offices in every major city, sub-brokers were running the office and have associated cost of running the business. All this added to the cost of brokerage and the rates were high and were anywhere in between 1% – 2%. But the landscape changed dramatically in 2010, when online brokers started operations in India. KYC norms were relaxed and it become possibly for the first time to open trading and Demat account without visiting the clients. Most of the trading also started to move online, further reducing the need to contact the broker physically. These company are also called as discount brokers.
This helped lot of new companies to start providing brokerage services at a never heard brokerage rates in India. And the main reason why they were able to do this is they have very little overhead cost. They didn’t have office in every city and they spend very little on marketing. Most of the new accounts were opened by word of mouth publicity. The major difference between full service and discount broker can be understood by watching the video below.
The main difference discount brokers have compared to full service brokerage is how the brokerage is charged. The full service brokerage charged as a percentage of the volume of trade while the discount broker works by providing flat brokerage structure. This is a major difference if you think about it. For ex ICICI direct charge .5% brokerage, so for a trade of 1 lakh, you will have to pay a brokerage of Rs 500. And if you think about it, the amount of work required closing the trade online, whether it is worth 1 lakh or 10 lakh is the same. For the same trade, discount broker used to charge Rs 20 which they have further reduced to ZERO or free.
This fixed brokerage was a big thing for heavy traders, as they can end up saving lots of money by using fixed brokerage brokers. So from 2010 onwards, most of the heavy day traders, started moving their account from full service broker to discount brokers. And as per rough estimates, discount brokers have more than 200,000 accounts now.
Finally in 2015, the largest discount broker ZERODHA having more than 75,000 clients thought that, they not only want to get traders but also want to get investor opening accounts with them. So they have launched ZERO brokerage plans. This zero brokerage will be applicable for only delivery based trades and not intraday trades and derivatives trades (F&O). So if you are just starting in stock market or want to get a feel for trading in stock market, this could be a best account for you as you don’t have to pay any brokerage. In the coming months, it is expected that many brokers which will start providing Zero brokerage.
One question some of you may have is how it is possible to charge ZERO brokerage. Would they be safe or should I be concerned about my money. The answer to that is, your money is safe and they are not losing money by giving brokerage for free. If you look at Indian markets, less than 10% of trades are for delivery and almost 90% of trade happens in intraday and F&O and mind you, they have zero brokerage only on delivery. So they are taking this more as an expense to open new accounts and there expectation is this will help them in opening many new account and some of the new account member will eventually move towards intraday trading and F&O and hence will become revenue generating customer.
So as an end use this is great for you and you should confidently open account with them.