Financial Chronicle: Discount broking makes a comeback

Discount broking is slowly making a comeback to the Indian capital market. Quite popular in the west, discount broking offers a better option for traders with fixed broking charge per trade and gives them a lot of saving, as they buy and sell equity shares in large volume on daily basis.With online trading getting more and more popular, discount broking is again getting the attention of traders. Traders hate high broking charge because it directly hits their profit margin. Further, there is not much scope for trading when brokerage is high. In the past, IL&FS Investsmart (now owned by HSBC) where the US-based discount broker E*Trade held a stake earlier, and Reliance Money had tried to offer discount broking model, but without much success, say industry officials. Advocates of discount broking argue that online cost of executing trade does not go with size of trade. “So why should broking cost go up?” Such online discount stock brokerage service attracts self-directed investors who have spent considerable time in the market and now don’t want to pay high brokerage for mere trade executions by their brokers.

For example, in a recent single trade worth Rs 2 crore in Sesa Goa shares, the discount brokerage for the trader was Rs 40 for buy and sell orders (normal brokerage would have been Rs 40,000 plus) while the total securities transaction tax (STT) was Rs 25,000, as the broking firm charged only Rs 20 per trade executed. The trader only had to pay STT and other statutory charges for the transaction besides broking fee of Rs 40.