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Impact Of Brokerage On Intraday Trading Profits

13 September 20236 mins read by Angel One
Impact Of Brokerage On Intraday Trading Profits
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Intraday trading is referred to as selling or buying securities on the same day. On any particular day, the trader sells and buys shares based on the expected volatility rate to make sure gains. This transaction settlement is done without the delivery of shares. These intraday transactions are called speculative transactions. Income from such transactions is known as hypothetical income, and losses are known as theoretical losses. Therefore, such income to losses from any speculation trading is taxable in the category of business income.

All the trading platforms charge a fee termed as brokerage to provide a trading platform to the investors. In intraday trading, the brokers also charge a brokerage. Brokerage is referred to as the commission charged by the brokers who help facilitate the trading. It is generally levied on every transaction.

How does brokerage impact the profit earned from Intra-day Trading?

In intraday traders’ dealings in a massive volume of trade, the brokerage paid by him turns out to be a considerable amount. Usually, the brokers charge it for every transaction that is facilitated on the trading platforms. It turns out that in intraday trading, the brokerage is higher as the number of transactions involved on a per day basis is more. Looking at the facts, for a regular trader assuming that he trades at least once every day for a month, the brokerage he ends up paying is 60 times, calculated twice every day for 30 days.

Also, the brokerage is charged as the percentage of the value of the transactions. As a result, the higher the value of the transaction the higher is the brokerage.

Therefore, both the volume and the value of the transactions impact the intraday trading profits earned from intraday trading.

The volume of trading= Amount of buying + selling of securities.

For example, if the security was bought for Rs. 6000 and sold for Rs. 9000, then the total volume of the transactions for the day is 6000+9000 = 14,000.

The brokerage is charged on both Rs. 6000 and Rs. 9000. The brokerage is 0.3%, then the value of the transaction, i.e., the total brokerage paid is 0.3% of 14,000, which will be Rs. 420.

Let’s consider another example to understand how the brokerage affects the overall intraday trading profit of a trader.

Assume that Mr. A is an intraday trader whose total trading volume in June is Rs. 1 lakh. He brought shares worth Rs. 30,000 and sold it for Rs. 50,000 during this month.

Calculating his intraday trading profit in case no brokerage charge is implemented.

Profit = 50,000 – 30,000

= 20,000/-

Hence, the actual profit that he earns is Rs. 20,000/-.

In this case, if the brokerage is assumed to be 2%, then the total brokerage amount will be,

1 lakh × 2% = 2,000/-

Deducting this brokerage, the overall profit will be

20,000 – 2,000 = 18,000/-

This dip in the profit is solely because of the brokerage.

The brokerage highly impacts the intraday traders’ profits compared to the long-term investors as the later ones only transact twice at the time of selling and buying, which also includes long intervals between them.

This makes the brokerage a considerable cost, especially for intraday traders. This brokerage cost can be reduced to increase the intraday trading profits of the intraday traders by a simple solution.

The solution to reducing the brokerage to maximize the profits of the intraday traders

A new concept has emerged in the security market that has significantly reduced the brokerage amount and has impacted the day trading profits earned by the traders.

It is called Free Intraday Trading. In this, the brokerage does not charge as the percentage of the value of the transaction. The brokerage in case of Angel One is set as a flat fee of Rs. 20/- or 0.25% (which is lower) on intraday trading. No matter what is the volume of the transaction in intraday trading, the brokerage will be Rs. 20/- per order.

This intraday trading favors the traders as they like to do their research and take the sell and buy decisions themselves. It also helps the traders by providing them free expert reports and tools to help them make better decisions. It is available only to the self traders who trade from the platform directly. For traders with the dealers, the charge may vary accordingly.

The features that are included are:

  1. Up-to-date Account Information

It helps you keep tabs on how your portfolio performs on a minute-to-minute basis, and you get updates on the transactions made, positions that you can view, and know the intraday trading profit and loss that you have made.

  1. Stock recommendation

The research analysis also shares inputs on which stock to buy or sell. The traders can thus make informed decisions with the best research in the market using the trading software.

  1. Live streaming stock market data

The current market data, such as the NSE BSE stream, the livestock quotes, data on top gainers and losers, market lots, updates on Sensex and Nifty, and more such as the most active scrips.

  1. Watchlists

A personalized track and Watchlists can be created in real-time with certain stocks of your choice. Each watchlist contains 100 scrips each, and multiple Watchlists can be made.

These reports and tools help make better decisions and reduce the brokerage to help increase the overall intraday trading profits.

For example, Mr. A is an intraday trader whose one day trading volume is Rs. 1 lakh on a single order. He bought shares worth Rs. 30,000 and sold them for Rs. 50,000 in intraday trading. The total profit earned is Rs. 20,000. Angel Broking’s intraday brokerage is Rs. 20 per order.

In this case, the profit after deduction of brokerage amount will be

20,000 – 20 = 19,980/-

The earlier case was Rs. 18,000/-

Therefore, the net savings increased due to the flat brokerage is Rs. 1,980/-.

So it can be seen that the flat brokerage amounts to huge savings for an intraday trader and also maximize the returns.

Therefore, if you are planning to start intraday trading, you need to ensure that you understand the effect of brokerage on the trades you make. While most investments have a simple brokerage norm, brokerage on the intraday trade involves various aspects.

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