The stockbroking industry in India has been around for a very long time. There are many stockbrokers in India and sheer number can make it confusing for most people to choose the right one. If the target audience has little or no knowledge of how to choose a stock broker, then every brokers’ marketing efforts may lure people to open an account. This has been happening to people across the country since inception. In this post, I will be showing you how to choose a discount stock broker wisely.
Evolution of stockbroking Industry:
In the old days, stockbrokers were primarily members of BSE. They conducted business in closed circles and the members of the exchange were like a community. After NSE was established, the rules of the game changed and qualified professionals could then apply for a broking license. In the subsequent years, the exchanges’ processes became electronic and this allowed wide access to the stock markets for retail trading individuals across the country. In my humble opinion, the only next innovation in favour of retail clients has been the advent of discount broking in India.
What is discount Broking?
Discount broking is the business model of charging flat brokerage fees or brokerage charges with a maximum upper cap per transaction regardless of the volume or size of the trade. Discount brokers in India charge a fraction of what the traditional brokers charge in brokerage fees because they provide limited, no-frills services. The rates at least 80-90% cheaper than traditional brokers. In India, it has come to a point where services matter more than brokerage charges.
How to select a stock broker?
There are various important factors to consider while choosing a stock broker. But before I highlight any of them, you have to understand that “Cheapest is not the best. So one must decide whether they really want to be with the best, or with the cheapest” I have explained this in further detail below. So anyway, you need to pay attention to:
- Trading Platforms: The world of trading and investing is competitive and participants are always trying to gain edge over others all the time. That’s just the way it is in this market place as any other. As markets have evolved and the nature of information flow and delivery has become faster and more precise, advanced trading platforms are a necessity in this day and age. Most stock brokers provide basic trading terminals and expect their clients to make a lot of money. Imagine competing in a race when you have a bullock cart in the age of evolving super cars. This is a relevant comparison. Decades after the stock exchanges became fully electronic, retail traders are still using outdated platforms. To trade like a PRO, you need to have professional tools and technology which are constantly being upgraded to stay ahead of the competition. At Fyers, we are doing precisely that. We have and continue to develop trading technology to empower traders with:
- Actionable information when it is most needed.
- Advanced charts and indicators.
- To function on a stable and reliable Order Management System.
- To get maximum uptime with the exchange without any disconnection issues.
- Historical and real-time data of prices, corporate action and news.
- Regular updates.
Traders and investors need to understand that the nature of competition and behaviour changes from time to time so a standard solution will soon become outdated. It is the stock broker’s job to look into aspects which will deliver an advantage to clients and trading platforms is one of the most important. We are very active in this domain. Our trading platforms are:
- Fyers One (Desktop Software)
- Fyers Markets (Mobile)
- Fyers Web Trader (Web-based)
- Trading Tools: They can assist traders in making trading decisions or help them get better or solve a particular problem. These add on services can show how much a broker is doing to serve the clients’ needs. At Fyers, we have some really useful tools like Options Strategies Lab which help design and choose from over 40 different option strategies based on your market outlook and preferences. We also have a tool to plan your money management in trading that can potentially help you develop a more disciplined approach to investing and trading in the Indian stock markets. There are several other tools which include financial planning calculators which are available in our Tool Box.
- Quality Customer Support: Online and phone support for trading, timely order placement and modification are very important. Make sure that the stock broking firm is managed professionally and the staff has a good reputation of managing clients efficiently. A compromise in this area can become a very unpleasant and can potentially cost you money too. Never ignore this! Customer support must always be on top priority. After all, Stockbroking is a service.
- Brokerage Charges: Discount brokerage firms are generally priced much below traditional broking firms so the price difference is very minimal. The law of diminishing marginal utility states that after a point, a per unit change in the consumption, will have a lesser effect on utility. In other words, after a certain point, the difference in brokerage charges has little or no advantage for traders. So beware of stockbrokers who base their business model purely on under cutting the competition. It is perhaps the easiest thing to do when there is no other unique selling proposition. I strongly recommend you give first priority to the stock broker’s platforms, tools and services before costs. Now having said that, I must reiterate that brokerage is important, but not at the cost of compromise in services or facing hardship later on while trading.
- Markets Enabled: NSE and BSE are the only two noteworthy stock exchanges in India. Among the two, NSE has maximum volume and a monopoly of derivative volumes. Apart from the penny stocks that are listed on BSE, all the other companies are listed on both the exchanges. So unless you trade in penny stocks or do high level inter exchange arbitrage, there is no difference in trading on either NSE or BSE. So it is ideal if the stockbroker has membership of NSE. In the commodities segment, MCX has the monopoly volumes and some brokers have membership of MCX as well. The other exchanges are either in the nascent stages of development or have failed to take off.
- Research: Discount broking firms generally do not have research desks and prefer to function as execution brokers only. The clients are generally expected to either do their own research, be proficient in the markets or take research or trading ideas from research firms. Considering that quality research is expensive and will push up the cost of running the business, discount brokers stay away from it.
- Timely Information: News such as the latest circulars from the stock exchanges and regulator SEBI, Latest stock market news etc. which can help traders get access in real-time. Also, providing user guides and discussion on various topics on trading platforms and ideas can prove to be very useful as client feedbacks can help the management implement important changes and upgrades going forward. Such initiatives are at the forefront of the FYERS brand.
- Transparency: Make sure you are dealing with a stock broker who is upfront about the brokerage and other charges like transaction costs, Annual Maintenance charges etc. so that there are no unpleasant surprises. Do not get lured in only by freebies. Good firms can and will run discount programs and offers. But overall, just be aware that the practice of hidden charges still prevails. Let’s be clear, everything has a cost and someone’s got to bare it. We are upfront about our charges and as a matter of policy, we publish our credentials, brokerage costs and other updates on our website for everyone to see.
These basic guidelines of how to choose a stock broker should be enough to help you determine what to look out for. I must point out that there are websites which are created solely to compare brokerages online. Such websites may have vested interests or tie ups with stock brokers and may not always necessarily display the best ones in order.
About the Author:
Tejas is the Co-Founder & CEO of FYERS (www.fyers.in), the youngest team to get NSE’s broker license in India. Having been a professional trader for several years, He and his team have started FYERS as a mission to enhance the terrain for traders and investors in India.