What is a Stock Broker?
The buying and selling of stocks occurs at a place called a stock exchange. In India, the two biggest stock exchanges are the NSE and the BSE. Given the large number of transactions that happen every day at different locations all over the country, stock exchanges use the services of intermediaries that enable the end-user to access the stock exchange and buy or sell stocks. These intermediaries are called stock brokers. Since stockbrokers provide an essential service, they charge a fee for it known as brokerage. There are typically two kinds of stockbrokers:
Full-service brokers enable you to not just participate in the stock markets but also provide a host of other services such as analysis and portfolio management, trading advice, access to financial instruments such as mutual funds, ULIPs, etc. Full-service brokers usually have physical offices at different locations from where they operate.
Discount brokers emerged mostly after the arrival of online trading in India. Unlike full-service brokers, they only provide limited services and in return charge a very low brokerage. They also do not have a physical presence in most geographies that they operate in. Most online stock brokers are discount brokers.
1. Brokerage and Other Charges
You must check if the brokerage charges are exorbitantly high or not for you to enter into the market. There are stockbrokers that charge you as high as Rs.1,500 for account opening and maintenance charges.
Then again, there are some stockbrokers who are opening accounts for free these days. There are those who charge a percentage of trade values which are commonly referred to as full-service trade brokers. And there are those who charge a flat fixed rate that is explicitly stated at the very start, which is charged irrespective of the trade value. These stockbrokers are termed as discount stockbrokers.
Good online brokers for stock trading ensure that there are no hidden charges and that every charge is explicitly stated through email notifications to ensure transparency.
2. Trading Platforms
This is a crucial part to look at especially if you are going to do the trading on your own. This is important due to the fact that every stockbroker provides some sort of trading platform but a lot of them are really not worthwhile using in the first place.
The Online trading sites for beginners are the ones that hand-hold you through the trading process. Trading is all about information, analysis, transparency and execution. Does your broker’s online website combine all these four factors? Your broker should ideally offers you a variety of screeners to shortlist stocks, provide short term trading ideas, give you powerful long term wealth creation ideas, simplify your navigation through the website, charts and technical support etc.
3. Initial Deposit H3
This is not a huge concern because you can always get it back. The only concern that holds is that the brokerage percentage will be deducted at the time of delivery. Lesser the initial deposit, the higher the brokerage charge you will need to shell out. An initial deposit of Rs.10,000 can lead to a brokerage of 0.45% per trade. An initial deposit of Rs. 1,00,000 can lead to a brokerage of 0.15%.
4. Research Team Expertise
Generally associated with full-service stockbrokers alone. The task of deciding on a full-service stockbroker with the most prominent research team, a daunting task on its own, can be made easier by looking at the credibility of the research team if they are appearing on news channels, their publishing’s in newspapers and journals. A visible research team is generally an indication of a good online trading broker.
5. Fund Transfer Process
Not an important factor to consider but a very tedious task for a day to day trader, especially when you are just entering into the market. What happens is that you need to transfer funds from your bank account into your trading account whenever you run out of funds. This process is simplified by bank stockbrokers. Major banks provide you with the facility of a 3-in-1 Demat account where your bank account is linked directly to your trading account and this fund transfer procedure can be automated as per your trade requirements.
From a retail investor point of view, the 2-in-1 account is more important than the 3-in-1 account. It is more critical to have the broker and the DP under the same head so that the process can be smooth. Even if your broker is not a bank, you can still allocate money from your bank account and the process can be equally seamless. The trading account for beginners in India is the one that offers seamless 2-in-1 facility at the bare minimum. It overcomes a lot of procedural hassles pertaining to trading and demats.
6. Customer Service
This service is more concerning full-service stockbrokers and depends on factors such as turnaround time taken by the service, channels of customer service such as chatbots, availability of customer service personnel, support in multiple languages, structured escalation process, etc.
Remember, broking services are not just about executing transactions. It is also about the follow up services like updating the client via phone / email / SMS, helping the client when they are stuck in positions, dispatch of contract notes on time, providing them online downloadable analytics and tax statements etc. Does the broker offer a call-n-trade facility as a back-up in case the internet services are down? Most importantly, ensure that the broker has good risk management. Brokers need to help clients but when they give too much leniency it amounts to bad risk management. Be cautious in such cases.
7. Offline Presence
Associated with full-service brokers alone. Good online trading brokers in the full-service segment establish an offline presence with sub-broker franchise networks by creating a sense of tangibility and establishing a trust factor by providing clients with the facility to get in touch with their local sub-brokers and stay updated with the market.
8. One Stop Shop for all Services
This is a very important consideration. In fact, choosing the stock broker for beginners also implies a broker who offers multiple products like equities, F&O, commodities, debt trading, interest rate futures, mutual fund advisory, insurance, loan products etc. The advantage of a one-stop shop is that you have all your needs met by a single one-point and that makes your entire task much easier. Focus more on the advisory services rather than just on selling products. After all, as an investor or a beginner in the stock market, you want solutions that are customised to you.
9. Brand Reputation
Stockbroking is a regulated market in India and SEBI has put in a lot of controls every year to make sure no scams are happening up and around. However, these things do happen in some of the good brokers for stock trading too. Check the number of active clients the brokerage has.
Lastly, is the broker in touch with the future?
This is very important because the nature of the broking business is changing rapidly in India. A broker who still sticks to old methods and ideas may not help you too far down the line. You need brokers who are able to offer you also driven solutions. You need automated advisory solutions for your personal finance needs. You also need brokers to provide you with technology-driven objective options for investment in a spectrum of products. All these will effectively add up to a good stock broker for you.
Do your research to identify if your stockbroker has a clean sheet or a past history of scams. Ensure your choice of stockbroker is registered by SEBI.
A trader is someone who makes money on a short-term basis. On the other side, investors are in it for the long haul. They make a stock purchase and then forget about it. They return a few years later to collect their money. You must determine which class category you fall into and hence which broker best meets your requirements.