Personal Finance

Should you go for unlimited trading, zero-brokerage plans?

Kumar Shankar Roy |BL Research Bureau | Updated on: Apr 02, 2022

Do zero-brokerage plans equate to trade success?

In a bid to attract new-to-trade and young investors, some stock brokers have come out with unlimited trading plans and zero-brokerage schemes. The unlimited trading plans offer unlimited number of brokerage-free trading in a given segment for a fixed monthly fee. On the other hand, zero-brokerage plans entail some upfront fees or charges, and you can trade in any segment at zero brokerage. We take a closer look at these offerings.

Unlimited trading

Frequent traders end up transacting tens and hundreds of trades every day. So, they end up paying more as brokerage. When one pays a high amount of brokerage, it is tougher to be profitable at the end of the day. This is because most discount brokers, while charging zero fee for equity delivery trades, levy ₹10-20 per equity intra-day trade. For equity futures too, they charge about ₹15-20 per trade. Options, which are a favourite on account of lower capital requirements, also are charged similar brokerage per executed trade. So, if you put through 50-100 trades a day, just the brokerage alone will be in thousands of rupees.

Unlimited monthly trading plans allows traders to pay a lower brokerage amount (per month) and trade without hesitation. This is ideal for active traders having higher frequency and volumes. Typically, there is no limit on number of orders, trades or quantities. Do note which segments are allowed to be part of the unlimited monthly trading plans. For instance, by paying ₹899 a month, Prostocks allows unlimited equity and equity derivatives trading in an exchange, while unlimited currency trading in an exchange is ₹499 per month. SAS Online charges ₹999 a month for unlimited trading across equity/currency segments with zero brokerage and ₹1,999 per month for MCX. Tradeplus, under its Flat Pro plan, charges ₹499/month for any number and any value of derivative trades.

Do note that securities transaction tax (STT), exchange transaction charges, stamp duty, SEBI turnover fees and GST will still be applicable for your trades. The more your trade, the brokerage may be low but the other charges still apply. For instance, a ₹1-crore equity futures turnover (buy price ₹990 and sell price ₹1,010 for 5,000 quantity) a day still means about ₹850 in charges in a monthly unlimited plan vis a vis ₹885 for two trades executed for ₹15 each.

Also, some brokers collect refundable deposit for demat account, while also charging one-time trading, demat account creation and annual AMC fee.

Zero-brokerage plans

In the last 2-3 months, prominent brokers such as Kotak Securities as well as newcomers such as Flattrade have announced 'zero-brokerage' plans.

Kotak has developed a no-brokerage plan, through which anyone under the age of 30 can trade in any segment at zero brokerage. Even if you turn 30 the day after you subscribe, you will be locked into this plan for the next two years. To activate this plan, one would have to pay a subscription fee of ₹499 per annum plus GST. Other basic DP/regulatory charges will remain. Kotak Securities employees, NRI, non-individual, advanced brokerage plan clients, differential brokerage plan clients and offline customers cannot access this plan. Do note that this plan is valid for a period of two years post which you will be shifted to the 'Trade Free Plan'.

In case of Flattrade, there is no brokerage for all orders — be it equity, intraday, F&O across all exchanges. Also, there is zero demat account charges and no AMC will be charged for lifetime. But to access this zero-brokerage plan one would have to pay account opening charge of ₹200 plus GST and the fee for POA for demat account is ₹175 plus GST (one time).

While Kotak Securities with the age-limit narrows the potential number of customers who can trade at zero brokerage, Flattrade at least on paper isn’t doing so. But how can the company run if it charges no brokerage? According to Flattrade, the expense is the same for it, whether it is a single transaction or million transactions. The company says it will generate revenue through funding products and also through the exchange benefits by doing higher volumes.

Weigh the risks

Be it unlimited monthly trading plans or zero-brokerage plans, one thing is for sure: trading volumes will rise for customers who opt for them. That is also the supposed aim for brokers. But there are certain points to consider before you sign up for such offerings.

One, brokerage forms a small portion of your outgo unless you are a very active derivatives trader. The statutory charges also take away quite a bit for high-turnover participants. So, simply lowering brokerage outgo will not make a huge difference.

Points to consider
Monthly-fee model or zero-brokerage plans will not remain forever
Loss-making transactions deplete your capital, low brokerage notwithstanding
High frequency, big volumes turn you into a trader, not investor

Two, usually brokers make some money irrespective of investors/traders making money or not. Low brokerage fees does not equate to trade success. You will still have to log those profitable trades. If you log loss-making transactions and deplete your capital, low brokerage will not make you less sad.

Three, high frequency and big volumes will turn you into a trader, not an investor. Trading has its own stress, ups and downs. Speak to professional traders before you go down that path. Low or zero brokerage is not an incentive to be a trader.

Four, social media is full of complaints against many of the new platforms that have launched these offerings. While smart use of technology can solve certain problems, unrealistic businesses may not have the capital to maintain service standards, let alone investing in capex to improve offerings.

Five, there is no guarantee that a flat monthly-fee model or zero-brokerage plan will remain forever. Some newcomers may try this to add customers and later water down the offerings.

Published on April 02, 2022
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