The very old saying – “Necessity is mother of all Inventions” can be modified a bit today to read as necessity is mother of all improvisation in products. As in any sector the various players stay in their comfort zone till going is good but product innovation begins as soon as overall volume/margin comes under pressure. All players go back to the drawing board and begin to draw fresh product to lure customers back to their products. This phenomenon has been witnessed in each sector – manufacturing or service.
Broking industry that began to prosper post Indian Government took the road to reforms in 1990s and retail investors/traders began to participate in rollercoaster ride that we all witnessed, some of us being part of it some sitting on sidelines and watching how lot of people created wealth and how so many lost it. Come 2008 and the world witnessed that size of financial institution does not matter when it comes to risk associated with a highly leveraged derivative financial instruments. Thankfully in India our regulators are very stringent as far as safety measures goes. Financial sector was hit as a business post 2008 and all financial houses went back to drawing board to re- invent their products. Broking industry has seen volumes dwindle as retail investor became indifferent. Online discount broking came as innovative product and today online traders in India do have option to choose between Full service broking and Discount broking services.
Full Service v/s Discount Brokers. Discount broking is meant for traders with do it on your own attitude as discount brokers do not provide any advisory services to their clients. If you think you need hand holding while selecting your trades and do need sound research reports before making your investment decisions then one must go for Full service brokers. But do analyze does your present Full time service broker provides you the advisory services you are looking for? If answer to this question is negative then there is strong case for you to move to online discount broking and save lot of money on brokerage.
Full Service Broking House. Beside online trading platform a Full Service Broking provides off line trading facilities at their branches/franchise offices, dedicated RM to guide a trader and in house research desk that helps trader/investors wade through all the puzzle that market movements create in a traders mind. While selecting an offline broking following parameters are important:-
(a) Brokerage Charges
(b) Research Desk
(c) Customer Services.
(d) Leverages and Funding.
Online Discount Broking. Discount Broking is primarily meant for those online traders who take trading decision on their own as Discount brokers do not provide advisory services to their clients. What they offer is significant saving to traders in term of cost of broking. Cost of transaction has major impact on the way one trades. A significantly lower transaction cost give lot of advantage to a trader and Discount Broker offer traders that advantage. So if you are not looking for advisory and can trade online – Discount broker should be your choice. Important parameters to consider while selecting a discount broker are:-
(a) Brokerage Plan.
(b) Cost of Transaction.
(c) Customer Support.
(d) Call and Trade Facility.
Selecting a suitable discount broking services is important. It being a new concept one must be careful to read between the lines when comparing various brokerage plans that are available today.
PAY PER ORDER V/S PAY MONTHLY FIX TRADE UNLIMITED V/S HYBRID PLANS
Today , three models of brokerage plans are available to traders. One is Pay Per Order, second is Pay Monthly Fix and Trade Unlimited and Third is recently introduced as Hybrid Plans that has features of both Pay Per Order and Monthly Fix plan built into one. As far as product type is concerned Hybrid Plans scores over other two plans.
Pay Per Order plans suits those traders who trade with large order size but do not trade very frequently in a day.( frequency of trading is 4to 6 only) Monthly Fix plan is for those who trade very frequently and their order size remains mix of small and large. As of now Zerodha offers pay per trade @ Rs 20 and RKSV/Smart Trade offering monthly fix at 1899 to 1947. Hybrid Plans have been introduced recently by VPS, offering traders Pay Per Trade @ Rs 10 with monthly fix charges of Rs 1700.Their hybrid plans are unique so far and it suits all kind of traders. VPS has also introduced some very innovative combo plans for traders.
For more details on various discount broker please read my other article How to Find Value in Various Discount Broking Concept.