Stocks allow for individuals to claim a variety of businesses by investing a portion of their money in a given company. This gives them ownership of a share of the company as well as the amount of stock held by them equal to its assets and profits., A number of stocks of one type are called shares. Companies benefit from opening up their ownership in this way because it boosts their operations and allows them to be more financially solvent. When they need to raise additional capital, they issue new shares. Buyers can invest in either common or preferred shares depending on the gambling they are willing to take.
Buyers and sellers of different stocks make up the stock market. Trades in the stock market can be done electronically, over the counter or through various stock exchanges. Stock exchanges provide the infrastructure within which these shares are sold and bought. This includes assuring its participants price transparency, liquidity, price discovery and fair dealing during all trading activities. The stock market has a roster of all the companies that offer public investors an opportunity to take advantage of their shares. Apart from shares, financial securities of a different nature can also be traded. These include commodities, currencies and bonds. Stock markets allow for a safe and regulated environment under low operational risk.
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What are brokerage fees?
Various entities act as professional traders to help buyers navigate the stock market with ease. They can be individual brokers or registered representatives who act alone or under a brokerage firm. Brokers receive revenue on a commission basis, although their compensation methods may vary depending on their employer. Historically, brokerage fees have been expensive because they provide a wide range of services that contribute to the creation of wealth. Brokerage fees exist to cover a wide range of costs, including those associated with maintaining demat accounts, researching and providing access to investment platforms. They can be a fixed payment or a deduction at a given percentage of the available balance in the customer account. They can also be used as insurance in cases of dormant customer accounts.
What is a discount brokerage, when did it start and what does it allow?
Before the ease with which the Internet and virtual communication became possible, a broker was too expensive to afford. With the advancement in the digital world it is now possible to consult brokers and avail their services through various means. Most brokers that offer online services offer these to a wide range of investors – some of whom have little spending power. This has created discount brokers that provide only a limited range of services as opposed to full-service brokers. The latter provide personalized consulting, tax and estate planning services to its clients. Since discount brokers offer limited services, their brokerage fees are not as high, making them a viable option for cost-cutters. This is especially beneficial for investors who actively buy and sell securities on a regular basis. Traders who have short portfolios or who only want trades executed on their behalf to account for clients of discount brokers.
Ways to reduce brokerage fees
By respecting one’s investment knowledge one can potentially choose a discount broker that provides full service thereby reducing brokerage fees. This of course means that one must keep up with the market which happens not only over a period of time. There is a need to consider the current financial situation and financial goals before deciding to reduce the brokerage fee and take advantage of a fraction of the traditional services provided. Additionally, brokerage fees can be reduced in the following ways –
(i) Investing in exchange-traded funds (ETFs) instead of mutual funds as they almost always have lower expense ratios than mutual funds. ETFs are a good choice for those with limited investment and market experience. They allow investors to meet long-term goals as they are more passive in nature.
(ii) Stocks that demand front-end/entry load – commission paid at the time of purchase of stock, or back-end/exit load – fees paid when stock is redeemed, can be avoided to reduce expenses Is.
(iii) Taking advantage of robo-advisory services instead of traditional brokerage companies or professionals. Although the assets under advisor within Indian robo-advisors are comparatively less than in the United States or the United Kingdom, they are promising. Since robo-advisors do not use a given person to physically manage client accounts – because they are automated, their internal cost of operation is low. So they can afford to charge lesser fees from potential customers. Currently, according to a survey conducted by CAMS in 2019, the youths in the age group of 25 to 38 years and the majority of millennials who take advantage of robo-advice.
(iv) Understand the difference between intraday trading charges and delivery charges. The first constitutes a small percentage because shares are bought and sold within a given day. The latter cost more because of holding the stock for a longer period of time.
(v) Always look for benefits ranging from brokerage cashback to discount on Annual Maintenance Charges (AMC) directed towards your demat account.
(vi) Familiarize yourself with all the charges associated with availing brokerage services – even those that can be hidden so that you do not go unnoticed and spend more in future. The brokerage firm’s disclosures state all things of potential interest. Must be read and understood before availing their services.
About the Author- Gaurav Heera is a stock market analyst & trainer with many years of experience in the field. He also heads DelhiCourses, an institute known for its best Stock Market Course in Delhi.
