How to select the perfect Trading Account

What is a Trading Account?

It is an online account, where you can login and place your order to buy/sell
equities and/or option and/or derivatives.

A Demat account is NOT the same as a Trading Account.

Think of Trading Account like the Bank Account you have at your local Bank
branch, and the Demat account like the locker you have WITHIN the
Bank branch where you keep your valuable belongings (in this case
where the Shares are stored)

So, there is a difference.

Trading Account is where you place you buy/sell order

Demat (De-materialized) account is where your shares are stored/kept

after you have purchased them.

Normally, when you sign-up for a Trading Account, the De-mat account is
provided with it (after necessary documentation)

How do I select the Trading Account?

Brokers/Brokerage houses help Retail Investors with getting a Trading

account.

Brokers are the middle men between the Stock Exchange and the Retail
Investor (You & I). Some of you may think, Can I transact directly with the
Exchange and place your buy/sell orders directly – The answer is NO.

The Brokers are licensed by the NSE & BSE to place orders on behalf of the
Retail investors with the Exchange (NSE or BSE) and for this service they
charge a ‘Brokerage’ or Fee from the Retail Investor (You & I).

Luckily, many brokerages have now started to charge ‘ZERO BROKERAGE’ on

‘DELIVERY’.

We will talk more about this as we go on.

Coming back to Trading accounts and brokers. There are many brokers who
offer trading accounts, which one should you choose?

There are two big factors to look for when choosing the Broker where you
open you Trading account:

1. Trust and Reputation

2. Brokerage charges (Fee for buying or Selling
Stocks/options/derivatives)
Trust and Reputation

A ‘BIG NAME’ such as Kotak securities will usually be considered more safe
than some ‘platinum brokers’ (Just a random name) located in west Delhi.

As long as the name is well recognized and been in the business for more
than 15 years (self-made metric to evaluate trust and reputation) you should
be okay with it.

Brokerage Charges

Besides the ‘BIG NAME’ & TRUST factor, we obviously want the brokerage
with the LOWEST POSSIBLE BROKERAGE CHARGES.

Luckily, there are many brokers now who have started providing ZERO
Brokerage on ‘Delivery’

*Delivery – Buying and holding shares for more than 1 day. The
opposite of Delivery is Intra-day, which is advise one should not get
involved in.

Many brokers offer zero Brokerages such as:

1. UPSTOX
2. Zerodha
3. SAMCO
4. SAS Online

Then there are traditional brokers, who are long established but generally
have slightly higher charges:

1. HDFC Securties
2. Kotak Securities
3. Motilal Oswal
4. IIFL
5. SBI
6. Sharekhan
7. And more…

You may choose any of the above as long as:

1. Brokerage is as low as possible (Some offer Zero brokerage on

delivery)
2. Even if Brokerage is NOT Zero, You can always negotiate so that the
brokerage is NOT more than 0.20 – 0.30% per trade (on
Delivery)
3. Depending on Volume of trades (How much money you’re going to
invest) you can negotiate charges. Usually the broker himself will tell
you the charges they can offer you based on the volume you will
generate.
 4. Reputation of the broker is good – Generally you can evaluate by
seeing how long they have been in the brokerage business (More than
15 years if generally good).

Please NOTE:

There are different types of charges associated with your Trading account:

1. Account opening Fee - Onetime

2. Account Maintenance Fee
3. Brokerage Charges (Different for Delivery, F & O, Derivatives,
Commodities)
4. STT – Securities Transaction Tax (0.10% + GST-18%- Charged on
every transaction even if brokerage is 0)
5. DP charge (paid only when you sell your shares NOT when you
buy them – (Rs. 13.5 Per scrip + GST – 18%) irrespective of the
volume)

But to keep it simple – Just select a reputed broker with lowest possible
brokerage charge and even if you don’t get zero brokerage, don’t accept
more than 0.20-0.30% brokerage.

Hope this gave you some insight into selecting the Perfect Trading account. If
you have any questions please e-mail info@eifs.in.

Thank you

Rahul Rao

CFA Candidate

EIFS Team