Who is a stock broker:
A stockbroker is an organization who is licensed by regulatory bodies in India (like SEBI, NSE, BSE, and other regulatory bodies) to participate in the stock market on behalf of clients. So stockbrokers are essentially agents who execute buying and selling trades in capital market (like BSE, NSE) on behalf of customers request.
SEBI ( Securities and Exchange Board of India ) is the regulatory body formed by Government of India and SEBI is responsible for finance & investment markets in India. Hence, SEBI is the enforcing authority over stock brokers in India and licensed stock brokers are governed by SEBI act of 1992.
Factors to keep in mind while selecting Stock Broker
Selecting a stock broker is an individual choice because each person might have a different set of requirements. For example, some investors might want a broker who provides the reliable call-in trading facility (because he/she is not comfortable doing investment themselves using computer or smartphone) whereas others might need a broker who has invested heavily in developing cutting edge mobile application for faster trade executions (and charts with technical indicators).
So although factors will vary based on individual needs, below are some main points which you should keep in mind while selecting your stock broker.
This is the fee charged by brokers( like ICICI Direct, ShareKhan, Zerodha ) from customers, to execute trades on stock exchanges ( like BSE, NSE etc). Although the transaction executed the same ( buying and selling of stocks ), somehow brokerage charged by brokers varies a lot and you can save or lose thousands of rupees if you are not careful in selecting your broker.
- Fixed percentage of total trade turnover.
- Fixed brokerage irrespective of trade turnover.
Account opening and other fees
When you open an account with a stockbroker, it would normally run for multiple years because moving stocks(& financial investments) is cumbersome. Because of this reason, over 80% investors retain their trading accounts. Hence, it is important to understand different kind of charges would be applicable to your trading account ( this would be a recurring payment)
Some main types of charges are: Trading account opening fees, Demat account opening fees, Yearly maintenance charges( also knows an AMC) for Trading and Demat account, Demat charges, minimum balance requirement charges, software fees ( desktop or online or mobile application) or any other fee which needs to be paid on monthly or yearly basis.
Call in trade option and charges
If you prefer placing your order by calling the trading desk, I would recommend that you get an understanding of the calling process and charges associated with the call-in trade before finalizing your broker.
Trading Software’s and Website
If you execute trades yourself using a website or mobile application or desktop based application, I would recommend that try to get a demo before signing up. Also, if you work in an IT sector or bank or almost any other sector today, chances are that your office computer is behind a firewall and traffic to trading websites could be blocked. In this case, availability of native mobile application on your mobile platform( like Android, IOS) from your stockbroker would be important. Also, in case your job requires you traveling throughout the day, you should definitely look for a broker who provides a mobile application based trading platform.
Trustworthiness of the brokers
All brokers operating in India are bound by SEBI act of 1992 and hence whenever a customer has a complaint against a stockbroker, he/she can register the complaint with SEBI. SEBI is very transparent and hence we can check how brokers are doing in terms of handling complaints raised by existing customers by visiting (http://scores.gov.in/). This would also give an idea on how many open complaints does a broker has and how are they dealing with it.
Presence in their local towns
Some people prefer a broker who has a local presence in their town of residence or office. Although to be very honest, I personally do not see a value because opening new offices would lead to cost increase which would ultimately be taken from customers. However, if you think it’s useful for your case, please find a broker who has a local presence in your area.
What do you think about the article? Please do share your feedback in the comments section below and let us know if you have any questions.