How do stock brokers make money in India?
The stock market practically runs on companies, traders, and investors, while all other external factors affect each stock’s prices. As simple as it may sound, there’s a lot more involved in the stock market than you think. Moreover, you tend to neglect the platform through which a trader or investor is executing their trades. Its where the role of a stockbroker comes into the picture.
In the past, if you ever wanted to place an order for any shares, you had to do so through a physical broker who would do the same for you. But nowadays, all that has changed, and everything has been digitalized to streamline the process. But you might be wondering, how do they earn if they offer such services? Do they even make anything? Well, to answer all your questions, we have provided relevant answers below.
Who is a stockbroker?
A stockbroker is anyone who carries out operations on behalf of you while charging a small commission on the stock market. They are registered with the BSE and NSE and other depositary participants to ensure that the traders and investors don’t have to do all those lengthy steps themselves. Instead, traders and investors can use their services to execute a trade on the stock market.
However, to execute trades, you would have to pay a commission to the stockbroker, which varies significantly for any purpose of buying or selling. In India, hundreds of different stock brokers help traders and investors execute a transaction on the stock market through their tools and offerings, making the whole process seamless.
Role of stockbroker
If you think that the role of a stockbroker is to intervene between the buying and selling of stocks merely, then your right. But then there are way more responsibilities and functions that they have to take upon. Some of which are given below.
- Advisory services
Such services are offered by some brokers, not all of them to differentiate themselves from the rest. Its where they tend to provide advice on the stock market, stock performance, inputs on trends based on research, and chart readings to their customers.
- Investment services
Another vital role of a stockbroker is to offer traders and investors a wide array of investment opportunities that deal with mutual funds, forex, commodity and currency segments, IPO investments, banking-related services, etc.
While the above-given roles have developed recently, they are still followed and broadly practiced amongst many stockbrokers registered as full service or discount brokers where the services and offerings could vary greatly.
How do they earn money?
With the digitalization of the stock market, stockbrokers have had their work cut out for them. Previously, when things were offline, stockbrokers directly represented themselves as the medium through which one can buy or sell shares. The commission on selling shares was fixed and could vary based on the number of sales to share or buy.
However, with digitalization, the entire system has changed significantly. Its where a broker can earn in different ways. They are as follows –
The first source of income for a stockbroker is through the brokerage that they charge on any transaction that an investor and trader might execute in the various segments of the stock market. The broker could charge a flat 20 or 10 rupees per trade or 0.05% of the total trade value. Moreover, few brokers also charge on account opening and maintenance charges. These vary significantly and could add to the revenue generated by the stockbroker.
- Tools for trading
Every broker has a unique and distinct trading platform wherein every trader and investor has to use. However, there are dedicated tools developed by the stockbroker that offer them to the investors for a small fee that could be a one-time or monthly subscription for those that are serious about trading.
- Misc. charges
These involve newsletters about a specific topic, certain tailor-made offerings, and other such features offered by the stockbroker. While most of them could be free, some do cost a pretty penny and do come under the revenue they generate.
Stockbrokers have stepped up their game in recent times owing to the pandemic wherein it seems a significant growth of people opening accounts with them. However, it’s quite a competitive market where you need to stand out to gain traders and investors to use your platform. The money that they make depends on investors executing trades. The higher the trades, the larger the income. Don’t always expect it to be a profitable business as there are several overhead charges that you need to pay upfront, which could range in lakh of rupees or more.