The Impact of Brokerage on the profits earned from IntraDay Trading

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Brokerage is the commission charged by the broker who facilitates the trading. All trading platforms charge a fee as brokerage to provide a trading platform to the investor. Generally it is levied on every transaction.

IntraDay Trading is a type of securities exchange transaction where the securities are bought and sold on the same day. Generally, people who are seasoned investors indulge in IntraDay Trading. They are self-traders.

How brokerage impacts the profits earned from IntraDay Trading?

Generally, brokerage is charged on every transaction facilitated through the trading platform. For an intraday trader who has a huge volume of trade, the brokerage paid by him turns out to be a big amount.

Therefore, in intraday trading the brokerage is higher as the number of transactions are more. Especially, for a regular trader assuming he trades at least once every day for a month, he ends up paying the brokerage 60 times, i.e. twice every day for 30 days.

Also, brokerage is charged as a percentage of the value of the transaction. Due to which higher the value of the transaction, higher the brokerage.

Therefore, both value and the volume of the transaction impacts the profits earned from intraday trading. Volume of trading means the total amount of buying and selling of securities.

For instance if the security was bought for Rs. 5000 and sold for Rs. 8000, then the total volume of transaction for the day is 5000 + 8000= 13,000. The brokerage is charged on both Rs. 5000 and Rs. 8000. So, for a brokerage of say 0.3% of the value of the transaction the total brokerage paid is 0.3% of 13000= Rs. 390

Now, let’s take an example to understand how it impacts the overall profit of a trader

Mr. X is an intraday trader whose total volume of trading for the month of May amounts to Rs. 1.5 lakhs. He bought shares worth Rs. 50,000 and sold it for Rs. 1 lakh during the month. Assuming there are no other charges apart from brokerage, the profit earned by Mr. X is,

Profit = Sale – Cost
1,00,000 – 50,000= 50,000

The actual profit earned by Mr. X is Rs. 50,000. 

But the net profit is after the deduction of brokerage, which is assumed to be 0.2%, therefore the total amount of brokerage is,

1.5 lakhs x 0.2% = 3000

Due to the brokerage the overall profit of Mr. X now becomes,

50,000 – 3000 = 47,000

This dip in profits of Mr. X is solely due to brokerage.

And brokerage highly impacts an intraday trader as compared to a long-term investor since, he only transacts twice i.e. at the time of buying and selling and in that too there is a long interval.

This makes brokerage a huge cost especially for the intraday trader.

This cost of brokerage can be reduced to increase the profits of a intraday trader by a solution. 

Solution to reduce the brokerage in order to maximize the profits

A new concept has emerged in the securities market that has significantly reduced the brokerage and hence, its impact on the profits earned.

It is called Free Intraday Trading.

In Free Intraday Trading, the brokerage is not charged as a percentage of the value of the transaction. Instead, the brokerage is charged as a flat fee which is very nominal such as Rs. 999 for the entire year. Therefore, no matter what the volume of the transactions is, the brokerage will be just Rs. 999.

It is good for traders like to do their own research and take buy-sell decisions themselves. The platform also assists such traders with free expert reports and tools to help the investor make better decisions.

It is available only for selftraders who trade from the platform directly. For trading with dealers the charges vary. However, the platform usually provides free expert reports and tools to help the investor make better decisions.

For instance, along with a flat brokerage Kotak Securities provides a trading platform called KEAT Pro X, which offers,

  • Up-to-date Account Information
    It helps you keep tabs on how your portfolio performs on a minute by minute basis, get updates on transactions made, view positions and know exactly how much profit or loss you’ve made.
  • Stock Recommendations
    The research analysts share live inputs on which stocks to buy or sell. You can make informed decisions with the best research in the market using the stock trading software.
  • Live-streaming Stock Market data
    You can watch the BSE, NSE & NSE currency markets with live stock quotes, Market lots, data on top gainers or losers, updates on the indices (Sensex, Nifty), most active scrips and more.
  • Watchlists
    You can create personalized watchlists and track in real time, certain stocks of your choice. You can create multiple watchlists and each watchlist may contain up to 100 scrips each. You can even combine scripts from the BSE, NSE and the currency market in a single watchlist.
  • Charting Tools
    You can make graphs and charts tracking the past and future projected performance of your favourite scrips using the unique charting tools on our share market software.

These reports and tools help the trader to make better decisions and along with it the reduced brokerage helps increase the overall profits.

Taking the example quoted above, let’s see how much Mr. X would have saved if he was trading on Free Intraday Trading platform,

Volume of the trade made by Mr. X was Rs. 1.5 lakhs.

Total Profit earned was Rs. 50,000

Revised brokerage is Rs. 999 p.a.

If we spread the annual brokerage over 12 months, it amounts to Rs. 83.25 p.m.

Therefore, the net profit of Mr. X after deduction of brokerage amounts to,

50,000 – 83.25 = 49,916.75

And earlier, the net profit was Rs. 47,000. Therefore, the net savings or increase in profits due to flat brokerage is Rs. 2916.75

So, it is clear that flat brokerage amounts to huge savings for an intraday trader and in turn maximizes his returns. Also, with the Smart tools, he probably could earn more profits by making even better investment decisions.

We hope this article helps you to save more and thus make more money from your Intraday trading.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.