If you are a beginner in stock market, it can be a confusing place to make sense. You will hear so many confusing terms like Demat account, Trading account, F&O, intraday and delivery based trading and so on. It can become difficult to make sense of it all. To help you trade in this confusing place, you need someone who can hold your hand and explain you the basics of the market and how it works. For that you have to choose a stock broker.
I would not be telling you about other terms but just explain what a stock broker is. In simple terms, a stock broker is an intermediary which helps you trade in stock markets. They have to be registered with SEBI to provide trading facility to clients like you. You will have to open account with one of the brokers to trade on exchange (NSE or BSE). Once you have opened the account with the broker, you can start trading. This was simple part to understand but now comes the interesting part of how to choose the broker. There are more than 100 well know brokers in India and large number of local brokers which provide trading facility in only one city.
So which would be a better broker for you?
Should you open account with a local brokers or should you go with a national well know broker?
And most important thing is how they are different.
In broad terms, brokers are of two types. One is a full service broker which provides all the financial services under one roof which you may need which apart from Equity trading. Various other services like Mutual funds investment to IPO investments to advisory service in which they tell you which stock you should be buying is also provided by them. Most of the well known brands like ICICI direct, HDFC Securities and Angel Broking fall in this category.
Most of the Full service broker has pan India presence and you can walk in their office to open an account. You will say that it is easy and as a starter I should select one from these brokers but there is a catch here. As there are Full service brokers, they have a much higher brokerage compared to other category of broker called Discount brokers. I will be talking about this in detail in the article.
So your next question would be what a discount broker. Discount broker are very similar to full service broker as far as regulation under SEBI is concerned. For SEBI, both of them are stock broker full stop. But discount broker offer fewer services than what is provided by Full service broker like most of them would not provide Mutual funds investment or provide advisory service. Some of the major discount brokers in India are Zerodha with more than 1 lakh client and RKSV. As they are discount broker, they don’t advertise much and so you would not have heard about them a lot but they are good decent brokers providing decent service. You can find more details about majors discount brokers here.
Another major difference is most of the discount broker work online and generally don’t have local offices in every city. Most of their work is done online from their HQ which is mostly in Mumbai, New Delhi and Bangalore. Then you will question that why should I should even think about opening account with them and that is where it becomes interesting.
To understand the difference better have a look at our video
The brokerage charged by discount broker is much lower that what is charged by Full service broker. I will explain the huge difference in the brokerage for both these types of brokers.
Say for example you are purchasing 100 shares of Reliance trading at Rs 1,000 which brings you volume of trade to Rs 1,00,000. If you are doing this trade with a Full Service broker, the brokerage they will be charging you will be anywhere from .3% to .5% in this case it will come to Rs 300 to Rs 500. Same trade with a discount broker will cost you Rs 20 irrespective of the volume of trade. So you will end up saving almost 90% of the brokerage.
With this example you can see that it make sense to open account with a discount broker but then remember when you are just starting, and you don’t know much about the market, discount broker will not provide you advisory service. You have to learn on your own. So if you are a person who don’t mind reading and researching about stocks and want to learn on your own on how the stock market works, go with Discount broker. But if you are someone, who wants hand holding to understand the basics of the market, you should go with Full service broker like ICICI or Angel.
So now that you know the basics, think of what type of broker you would need for trading. Some of you could think that you can open an account with a Full service broker and trade and once you are comfortable you can switch to discount broker. This is certainly possible and you can do that but remember that most of the time, it is not easy to change the broker as you have shares with them in your Demat account which you will need to transfer or sell to the new broker which require some work and is not easy.
So in the end I would just advise you to read the reviews of the broker, talk to as many as you want and then decide who would be the best for you. There is no single best broker for everyone.