InvestorQ : I am an aggressive trader in equities and in futures. Is there some especial advantage for me to go with discount brokers?
Anu Biswas made post

I am an aggressive trader in equities and in futures. Is there some especial advantage for me to go with discount brokers?

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Neelam Naik answered.
2 years ago
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In fact, if you are a self driven trader, then it can add a lot of value to go to a discount broker. Here is why.

· The discount broking model substantially brings down the cost for aggressive traders. For example, for a trader who does a monthly cash market volume of Rs.2 crore, a saving of 20 basis points in brokerage costs, leads to a reduction of costs to the tune of nearly Rs.40,000 per month. This is good enough to run a small office.

· For a trader, the discount broking model enhances the return on investment. For example, if a trader earns profit of Rs.50,000 on a capital base of Rs.10 lakhs in one month, that translates into an ROI of 5%. If you consider the reduced brokerage of 20 bps under discount broking, the actual ROI goes up to 9% per month. That is a huge difference to the economics of trading and also a great reward for risk.

· Discount broking can also make a huge difference to loss making traders. For example, traders making up to 4% losses currently will end up making profits. That substantially enhances risk appetite of traders and allows them to churn capital more aggressively and also effectively in their quest of returns.

· Lastly, the discount broking model compresses the breakeven point of most trades. Breakeven is the point where you make no profit and no loss. While discount broking model saves you the brokerage and the GST, other charges like STT, Turnover Tax, Exchange Charges and Stamp Duty remain as they are charged on turnover and not on brokerage. Even in discount broking there will still be a cost you incur. Let us take the example of TCS. If TCS is quoting at Rs.2500 then at a cost of 50 bps, the stock of TCS will have to move Rs.12.50 either of the ways to be profitable. If the costs are down to 30 bps, the movement required is only Rs.7.50.

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