Every time you buy or sell a share, a few small charges come with the trade. They are easy to overlook, but over many trades they can take a real share of your returns. Knowing how brokerage is calculated, and what else gets added to it, helps you plan a trade properly before you place it.
This guide explains what brokerage is, how it is calculated, which other charges apply, and how to keep your costs under control.
What are Brokerage Charges?
Brokerage is the fee or commission a broker charges for executing your buy and sell orders. It is charged on both sides of a trade, so you pay it when you buy and again when you sell. It covers the cost of the trading platform, order execution and, depending on the broker, services such as research and advisory.
The Brokerage Formula
For a percentage-based brokerage model, the formula is:
Brokerage = Number of shares × Price per share × Brokerage percentage
In words: work out the total value of your trade, then apply the broker's percentage to it. The same calculation is repeated for the sell order.
For a flat-fee model, there is no calculation to do. You pay a fixed amount per executed order, whatever the size of the trade.
Types of Brokerage Models
1. Percentage-based brokerage
The broker charges a set percentage of the trade value. The larger the trade, the higher the brokerage. This model is commonly associated with full-service brokers.
2. Flat-fee brokerage
The broker charges a fixed amount per order, regardless of trade value. This model is commonly associated with discount brokers and tends to suit larger or more frequent trades.
|
Percentage-based |
Flat-fee |
|
|
How it is charged |
A % of trade value |
A fixed amount per order |
|
Cost rises with trade size? |
Yes |
No |
|
Commonly offered by |
Full-service brokers |
Discount brokers |
|
Often includes |
Research, advisory, relationship support |
Trading platform and execution |
Full-Service vs Discount Brokers
- Full-service brokers offer a wider set of services, such as research, advice and portfolio support, and usually charge higher fees for them.
- Discount brokers offer a basic trading platform at lower cost, typically through flat fees, and leave decisions to the investor.
Neither is better in every case. The right choice depends on how much guidance you want and how often you trade.
How Brokerage Differs by Type of Trade
- Intraday trading: You buy and sell on the same day. Brokerage is usually lower and is applied to the total turnover, meaning the buy value plus the sell value.
- Delivery trading: You hold the shares beyond the trading day. Brokerage is typically higher than for intraday, and some brokers charge none at all on delivery trades.
- Futures and options: These are usually charged a fixed fee per order, along with their own statutory charges.
Other Charges That Apply to a Trade
Brokerage is only one part of the cost of a trade. Several other charges are added to it:
- Securities Transaction Tax (STT): A tax levied by the government on securities trades. The rate depends on the segment and on whether you are buying or selling.
- GST: Charged on brokerage and on exchange and other transaction-related fees.
- Exchange transaction charges: A small charge on turnover, collected by the stock exchange. It varies by segment.
- SEBI turnover fee: A regulatory fee charged on turnover.
- Stamp duty: Charged on the buy side, with rates that vary by segment.
- DP (depository participant) charges: A flat fee charged when you sell shares held in your demat account in a delivery trade.
Statutory charges are set by the government, regulators and exchanges, and the rates can change over time. Always check the latest rates on your broker's charges page and on your contract note.
What Affects the Brokerage You Pay?
- The value of your trade: Under a percentage model, higher value means higher brokerage.
- How often you trade: Every buy and sell order carries its own charges, so frequent trading adds up.
- The type of broker you choose: Full-service and discount brokers price very differently.
- The type of trade: Intraday, delivery and derivatives trades are each charged differently.
How to Keep Your Trading Costs Down
- Choose a brokerage model that fits your style. Frequent, high-value traders often do better on flat fees. Investors who want guidance may find a full-service model worth the extra cost.
- Read the full charge sheet. Look beyond the headline brokerage rate to platform fees, DP charges and minimum brokerage per order.
- Trade with purpose. Each round trip costs you twice, once to buy and once to sell, so fewer, better-planned trades help you keep more of your gains.
- Know your breakeven before you enter. The price has to move far enough in your favour to cover all your charges before you make a profit.
- Review your contract notes. They show every charge on every trade, which makes it easy to spot costs you hadn't expected.
Frequently Asked Questions
For percentage-based brokers, brokerage = number of shares × price per share × brokerage percentage. For flat-fee brokers, you pay a fixed amount per executed order.
Yes. Brokerage applies to every executed order, so both the buy and the sell attract it.
No. STT, GST, exchange transaction charges, SEBI turnover fees, stamp duty and, for delivery sales, DP charges are added to it.
A full-service broker offers research, advice and wider support at higher fees. A discount broker offers a basic platform at lower, often flat, fees.
No. Intraday brokerage is usually lower and is applied to total turnover, while delivery brokerage is typically higher, and some brokers charge none on delivery.
Your contract note shows every charge applied to each trade, and your broker's website lists their brokerage and other charges.
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