Understanding Brokerage-Free Trading Accounts
Pioneers like Zerodha are jostling for space with new entrants in this crowded space of stockbroking apps where new entrants are coming up with attractive features for traders.
New Delhi: Indian investors who had traditionally invested in bank deposits and physical gold switched en masse to stocks and mutual funds in recent years, driving stock markets to all-time highs. The retail investor-led boom also boosted the demand for new trading apps like Lemonn, Upstox, and Groww.
Pioneers like Zerodha are jostling for space with new entrants in this crowded space of stockbroking apps where new entrants are coming up with attractive features for traders. For instance, the Lemonn app from Peepalco has upended the industry with attractive offers like free brokerage trading accounts for a year.
To be sure, brokerage charges—fees that brokerages charge from traders for buying and selling—-can be quite significant depending on the frequency of trading and trading volume. Let us understand brokerage in context to understand the importance of free brokerage.
What is zero brokerage trading?
As the name suggests, zero brokerage trading is one where the stock broker provides trading services without brokerage fees on transactions. Brokerage can eat into the profit margins of common users trading in the stock market. While the transaction fees can be nominal depending on the size of the trade value, why pay commission when you could benefit from zero brokerage? We will compare the advantages of zero brokerage trading with traditional brokerage charges.
Cost Of A Trade With A Traditional Brokerage
Stock brokers levy charges to facilitate the buying or selling of securities. Brokerage charges can range from 0.01% to 0.5% of the transaction value. Charges can vary based on trade value, type of trade, and broker. As a general rule, every time a trader places a trade, he needs to pay a transaction fee. It's no wonder that the zero brokerage trading model is a big hit with traders.
Zero Brokerage Trading Model
The zero-brokerage trading model is not just a ruse to draw people into a trading platform. This incentive benefits traders rather than brokers by eliminating percentage-based brokerage fees charged by a traditional brokerage. Zero brokerage trading or free trade brokerage caters to both small traders and large investors. With zero commission or a flat fee per trade, the zero-brokerage trading model promotes cost efficiency by allowing stock market traders to trade frequently minus transaction costs. This, in turn, encourages more trading activity, increasing the profit-making potential.
Brokerage Charges For Online Trading
There are several brokerage charges associated with online stock market trading. These charges typically include:
The standard fees are charged by the broker for executing trades.
Brokerage fees vary based on the asset type, such as equities and F&O (Futures and Options). Besides, the rate also depends on the fee structure of the provider. While some might charge a flat fee, others levy a percentage of the trade value.
Brokerage charges would also depend on trade value, with low-value trades incurring lesser fees and high-value trades incurring more.
Brokerage charges for online trading might also include account maintenance charges.
Benefits Of Zero Brokerage Trading Account
Zero brokerage trading accounts offer several benefits to traders. Let’s look at some of them.
Lower Investment Costs
With zero commission, traders can maximize their profits with less investment. While this might sound like minimal savings for people who don’t trade often, it benefits intraday traders and active investors hugely.
Zero Holding Charges
Several zero brokerage trading accounts also offer zero holding charges. This can add to the overall profit and reduce costs as traders can keep their stocks long-term with the brokerage without worrying about additional charges. However, it is important to note that this can vary depending on the broker’s fee structure. While holding stocks and mutual funds comes with zero holding charges, holding electronic securities in a demat account might still incur charges.
Enhanced Security
When discussing the advantages of a free brokerage trading account, it should be noted that security is not compromised. Platforms that offer free trading accounts, such as Lemonn, provide robust security features that match or even exceed the level of safety in traditional brokerage platforms. All transactions are secure, and traders can just focus on trading.
Active Trading
In a brokerage-free platform or app, traders can frequently trade without worrying about paying the brokers for their profits or losses. In a traditional brokerage platform, investors have to pay high fees no matter the outcome of the trade. So, zero brokerage trading accounts encourage traders to take risks and trade in the stock market without anything holding them back.
How To Choose The Right Zero Brokerage Trading Account
Zero brokerage has become popular, with many people venturing into stock market trading. Choosing the right zero brokerage trading account is one of the most important steps, as it could define the whole trading experience. Here are some points to ensure that you pick the right zero brokerage trading account:
Reputation of the platform: With many platforms providing free brokerage accounts in India, it is important to pick a broker with a good reputation and a reliable team backing them.
Features offered: Zero commission alone shouldn’t be the criterion for a trader to choose a stockbroker. It is crucial to consider other services provided, such as real-time market data and technical analysis tools, to help investors make informed decisions.
Curated portfolio of stocks: Many of us are not experts in stock selection. For instance, the Lemonn app comes with an “analyst rating” feature. It uses financial market data provider Refinitiv and offers Buy/Sell/Hold recommendations and recommendations on exit prices for novice traders.
Security: Security is one of the most important features for any financial service provider. If you want to look at any specific features, you can find out about security protocols like their encryption and two-factor authentication (2FA).
Customer support: Pick a platform with reliable customer support. If an event arises where you need customer support, the team should be available to assist you round the clock.
Ease of use: Stock market trading can become complex if you don’t have the right platform, especially for beginners. So, pick a platform that is easy to use. You can download the app or visit the broker’s website to check their user interface and navigate the platform’s accessibility to make your selection.
Types of assets offered: Another important factor to consider while choosing a broker is to look at the range of assets they offer, such as equity, F&Os, commodities, and other instruments.
Conclusion
Zero brokerage trading accounts are excellent investment platforms that ensure cost effectiveness while maximizing returns. However, picking the right stock broker would entail thorough research. Traders should analyze features like the platform’s reputation, range of assets provided, and security while selecting a broker. Ultimately, the decision depends on individual preference and financial goals.
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