Hey thanks @RahulKhanna
Firstly this change in minimum brokerage doesn’t make a difference to Futures or Options contracts. All of them have a contract value of many lakhs ( Options contract value = (Strike+premium)*lot-size), so the brokerage remains the same - Rs 20/executed order. Equity delivery remains free as well, so nothing changes. The only difference will be for those who trade intraday equity. There are a few reasons why we had to do it
- There is a fixed cost to execute every trade. For example, our connectivity to the exchanges has a certain message capacity, our data centre costs, etc. We have our clients execute a lot of very small value equity intraday trades where the earnings don’t add up to the costs. For example, if someone bought for Rs 1000, 0.01% is Rs 0.1. The minimum cost to execute every trade for us is the same. So we had to increase this, in the above example, instead of Rs 0.1, it will now be Rs 0.3. As the size of the trade becomes bigger, we anyways give the benefit of not having to pay more than Rs 20 per executed order.
- Unlike equity delivery trades which bring no risk on the table as the customer puts in 100% of money upfront, intraday trades also bring in risk on the table. When clients have taken positions using leverage if the stock falls more than the margin that is provided, the risk shifts to the brokerage firm. In essence, it is almost like an insurance business, the brokerage you earn should be enough to cover for black swan events when brokerage firm can lose money because of the customer running a debit and not paying up the money. These low-value trades were bringing in risk too, which we realised over the last 3 weeks of market meltdown.
- The traditional brokers anyways charge quite high, but the largest low-cost brokers that we compete with were also charging a minimum of between 0.05% to 2.5%, much higher than the 0.03% we now charge.
So yeah, the minimum brokerage had to be increased to cover for the minimum cost of executing a trade.