# How do Stock Brokers Calculate Brokerage Fees?

Have you ever wondered how does a stock market broker calculate its brokerage charges? Despite the brokerage rates laid out at the beginning, do you still have apprehensions regarding the charges levied on your trades? We will examine how these charges are arrived at.

## Stock market brokerage

A stockbroker provides you with a trading facility in the stock market, and you pay the broker a commission for these services. This commission, usually charged as a percentage of the value traded, is referred to as the brokerage.

The brokerage charge is specified in the contract and is a fixed percentage that the broker will deduct from your portfolio. Say, for example, you purchased 1000 shares of TCS at 500 each. Subsequently, you sold those shared four days later at 550 each. In this case, the transaction value would be:

(1000 x 500) + (1000 x 550) = ( 5,00,000 + 5,50,000) = 10,50,000

As it is a delivery trade, consider 0.4% as the standard brokerage. So to calculate your total brokerage charges can be arrived at by multiplying the percentage with your total traded value. Which will be:

10,50,000 x 0.4% = 4,200

Hence in this particular buy and sell transaction of 1000 TCS shares, the total brokerage charged to you is 4,200.

If your traded value is smaller, say, for instance, you purchase 10 shares of Aptech at 10 each and sell them a few days later at 12. In this case, your total traded value would be:

(10 x 10) + (10 x 12) = (100 + 120) = 220

By calculating 0.4% of 220, you will arrive at a figure of 0.88. Full-service stockbrokers, however, maintain the lowest brokerage charge limit. This usually ranged between 20 and 30. This means that no matter your traded value, the brokerage charge cannot be lower than the lowest limit.

The executives of stockbrokers will discuss brokerage charges as 10 paise or 50 paise. However, that doesn’t mean you will be paying that amount as a brokerage. The industry terminology expresses that you will be charged 0.10% or 0.50%, respectively.

There are simple brokerage calculators available online to help you seamlesslyly do the math. You can also negotiate the brokerage charges with the executives at the stockbroking firm. They may not be open about it but, brokerage rates can always be negotiated. You stand a better chance at negotiating if your initial capital is high or willing to commit to a high turnover.

## Discount Brokers

You also have discount brokers, who charge a flat brokerage fee irrespective of the traded value. A discount broker like 5Paisa will charge you 10 as a brokerage charge per order executed. Your traded value could be 1,000, 10,000 or even 10,00,000; the brokerage levied would be 10. Similarly, other discount brokers will charge your 10 to 20, no matter your trading volume.

There are even a few discount brokers who offer flat monthly and yearly plans. Such plans offer you unlimited trades for the subscribed period and are well suited for heavy traders.

Brokerage houses like Finvasia charge clients a periodic fee (monthly/yearly) depending on the trading platform that they choose. This gives their clients the freedom to trade in any segment, as many times they want and up to any value.

Apart from the brokerage fee, you also need to pay the following charges:

### Service Tax

This is 15% of the brokerage charge and can be further broken down into 14% service tax, 0.50% Swachh Bharat cess, and 0.50% Krish Kalyan cess.

### Stamp Duty

The stamp duty charged varies from state to state. In Maharashtra, it is 0.01% of the transaction value for equity delivery trades.

### SEBI Turnover fees

SEBI levies this fee on all the transactions that take place in the stock market.

### Securities Transaction Tax

This tax depends on the trading segment. In the case of equity delivery, 0.1% of your traded value will be adjusted as STT, which will be 0.05% in the case of options.

The above information will help you understand the calculation of brokerage by stock market brokers so that you can make an informed decision of choosing your broker.

### Prakriti Arora

I am an 18-year-old knowledge seeker who explores the world with curiosity and wonder. I like to remain trusted, innovative and continually evolve and grow myself through new experiences.