How to Calculate Brokerage in the Share Market?

When you buy or sell shares through a stock exchange, there are quite a few fees and charges that you would have to pay for every transaction. Among the many different charges, brokerage is by far the most significant. Therefore, it is important to learn how to calculate brokerage in the share market to make informed decisions.

Brokerage is basically a fee that stockbrokers charge for enabling you to place trades on the stock exchange through their trading portal. Depending on the stockbroker with whom you’re associated, you might have to either pay brokerage as a percentage of the total trade value or as a flat-rate fee for every successful trade.

Brokerage is payable only on successfully executed trades. If you have any pending or unexecuted trades in your order book, then you won’t have to pay any brokerage on these transactions, until after they’re executed. Also, brokerage is payable on both buy and sell orders on delivery and intraday trades.

What are the Types of Brokerage?

There are two main types of brokerages in India: full-service brokers and discount brokers.

• Discount Brokers:

  These brokers offer a web platform and mobile app based investment and trading. All the relevant research and analysis tools can be accessed directly via their online platform. Their fees are significantly lower compared to full-service brokers, making them suitable for traders who prefer to make their own investment decisions.

• Full-Service Brokers:

  These brokers provide a wide range of services including research reports, investment advice, portfolio management, and more. They charge higher brokerage fees due to the extensive services they offer. They are more suited to traders who may not be very comfortable using online tools on their own and are willing to pay additional charges for personalised assistance.

Ways to Calculate Brokerage in Share Market

Calculating brokerage for any given trade is exceptionally easy and takes only a few minutes. Here’s a quick look at how you can do it manually.

Example of Brokerage Charges

To understand brokerage charges, let’s consider an example.

Suppose you buy 100 shares of a company at ₹ 50 each. The total transaction value is ₹ 5,000. If your broker charges 0.5% brokerage per transaction, the brokerage fee will be:

Brokerage = Transaction Value × Brokerage Rate

Brokerage Amount = ₹ 5,000 × 0.005 = ₹ 25

Factors Affecting Brokerage Fees:

The calculation of brokerage depends on the following factors:

• Buy/Sell Price -

  The price at which you purchase or sell a single security unit is one of the primary criteria that determines brokerage. The brokerage is directly linked to this price.

• Transaction Volume -

  The volume of your transactions is another important aspect that affects brokerage, whether it is determined manually or with the use of a brokerage calculator. An increase in the brokerage amounts is typically the outcome of increasing transaction volumes. However, some brokers might reduce the percentage commission for investors who trade in large quantities or bulk.

• Broker Type -

  Choosing the broker that levies less brokerage will definitely help you save on Brokerage. With m.Stock Zero Brokerage a/c, you can invest/trade at Zero Brokerage for lifetime across all products.

How Does Brokerage Charge Help to Determine the Net Profit?

Brokerage charges directly impact the net profit of your trades. To determine the net profit, you need to account for the total cost, which includes the buying price, selling price, and brokerage fees for both transactions. Here's a simple calculation:

• Total Buy Cost:

  Buy Price + Buy Brokerage

• Total Sell Revenue:

  Sell Price - Sell Brokerage

• Net Profit:

  Total Sell Revenue - Total Buy Cost

For example, if you sell the shares for ₹ 55 each (total ₹ 5,500) with the same brokerage rate:

Sell Brokerage = ₹ 5,500 × 0.005 = ₹ 27.50

Total Sell Revenue = ₹ 5,500 − ₹ 27.50 = ₹ 5,472.50

Net Profit = ₹ 5,472.50 − ₹ 5,025 = ₹ 447.50

Read Also: Is there a Firm in India that offers Zero Brokerage across Products?

Conclusion

Knowing how to calculate brokerage charges and understanding how it can affect your net profit is key to reducing your trading costs and improving profitability. Although you can manually calculate brokerage charges, the process can be cumbersome and involves the risk of manual errors as well. Instead, using tools like the m.Stock brokerage calculator can help you estimate these charges accurately, making it easier to plan your investments.

m.Stock Brokerage Calculator

The m.Stock brokerage calculator is a very useful tool that helps you calculate the brokerage fees for your trades. Here are its benefits:

• Accurate Estimates:

  It provides precise brokerage charges based on your transaction value, ensuring you know the exact cost beforehand.

• Easy Planning:

  Helps you plan your investments by giving a clear picture of the costs involved.

• User-Friendly:

  Simple and easy to use, making it accessible for beginners and experienced traders alike.

• Cost Comparison:

  Allows you to compare brokerage fees across different brokers, helping you choose the most cost-effective option.

• Time-Saving:

  Saves time by quickly calculating the charges, enabling you to focus on your trading strategies.

Using the m.Stock brokerage calculator can streamline your trading experience, helping you make informed decisions and maximise your profits. Based on your trading style and frequency, you can easily calculate your potential brokerage charges.

m.Stock offers you the opportunity to trade with Zero Brokerage for life, thereby increasing your net profit on each trade.