who are Stock Brokers ?

Stockbrokers are the financial intermediaries that take buy/sell orders from their clients and execute them in the stock exchange.

Stockbrokers are registered with stock exchanges first like NSE/BSE or both under the norms of SEBI. After that, any individual, retail investor or trader willing to trade/investment in stocks must choose to register with any of brokers authorized by Stock exchanges and SEBI.

So in simple words, stockbrokers are the link between the Stock market and investors and they charge for executing any buy-sell order from clients. So, here is the point while we choose any stockbroker to work with, we need to understand how much brokerage we have to pay for executing a single order.

Let us understand with an example:-

 Client A is registered with a stockbroker charging Rs. 10 per order buy/sell and Client B is registered with another stockbroker charging 0.55 of total value traded in INR.

Now Client A & Client B both bought 1000 shares of ICICI BANK @ 450 rs. per share on delivery basis holding for a week.

 Quantity is known to us but value of 1000 shares * value of 1 share = 1000*450 = 450000 rs.

After 1 week the share price increased by 3 rs. now ICICI Bank is at 453 rs. per share and both investors found the stock is at resistance and it will not go up from here. so they decided to close their open positions and book a profit of 3 rs. per share.

Here are the twist friends, both are happy that they are going to book a profit of 3000 rs. but still, they have to pay brokerage, taxes and other charges to brokers and exchange for executing their buy/sell orders.

Let's start with Client A, his/her broker charging flat 10 rs. per order so, for buy-side 10 rs. and sell-side 10 rs. total = 20 rs. brokerage Client A has to pay from his/her profit.

 There are other taxes charged by the exchange as tax and clearing charges that I will show you in an image chart with final profit/loss.

Now come to client B and his/her broker is charging for the value traded, so, first of all, we need to calculate the value of buy quantity and value of sell quantity by multiplying quantity with per-share value respectively.

Buy value of 1000 shares = 1000*450 = 450000 rs.
&
Sell value of 1000 shares = 1000*453 = 453000rs.

Total buy-sell value = buy value of shares + sell value of shares = 450000 + 453000 = 903000 rs.

Now it's time for Client B to pay broker charges = 0.55% of total traded value excluding other tax and charges = (903000*0.55)/100 = 4966.50 rs.

So friends, Client B have to pay 4966.50 rs from the profit he/she earned. now let see the profit is 3000 rs.

Profit/loss of Client B is = Brokerage - Profit = 4966.50 - 3000 = -1966.50 rs. exculding taxes and other exchange clearing charges.

so -tive signs show the overall loss for Client B even after it is in profit as per-share price increased by 3 rs.

There are other taxes charged by the exchange as tax and clearing charges that I will show you in an image chart with final profit/loss.

As it is shown above with the help of example it is very important to choose the correct broker for executing orders in the share market. Otherwise, you will be in loss even your stock price moves in +tive direction.

So the conclusion of the above is all that choose your broker fairly and first understand the charges you have to pay for buying/selling shares. Because of only not, one reason that you have earned profit but still in loss, In the worst condition let's assume if the stock price falls from 450 rs. per share to 445 rs. per share.

 what will happened in that condition your brokerage will kill you more than the loss per share, I am posting one more image showing the above worst condition for Client B:-

You can see above from the image that Client B has to pay extra brokerage that not only eats up the profit as well as in the worst case it takes you in-depth of losing money in this market.

So, the conclusion of the story is in the stock market there are two types of brokers one who are like big sharks and others like Parrotfish that allow others to be alive in this trading world.

The Big sharks are known as Full-service brokers and on the other hand, the Parrotfish are well known as discount brokers.

I hope guys this topic will clear your mind and when next you go for trading you will know where is the profit and how to save it.