Real Truth of ZERO BROKERAGE by Brokers
What is Brokerage?
When you buy or sell stocks or other investments, you usually have to pay a fee to a broker. This fee is called brokerage. But did you know that some investors get zero brokerage?
Why do Some Investors Get Zero Brokerage?
Ananth Narayan, a director of Securities and Exchange Board of India (SEBI), explained that some investors get zero brokerage not because the broker likes their face, but because the broker is making money from the float in the ecosystem. The total amount of cash-equivalent collateral that investors put in the ecosystem in an average day is around Rs 4.5 lakh crore.
Market Efficiency and Intermediaries
Narayan mentioned that as markets have become more efficient, intermediaries like brokers are making less money from inefficiencies. However, they are still making substantial revenues from their client base. Even though their share of the pie has shrunk, they are making more money than they did 30 years ago.
Benefits of Efficiency
Improving efficiency, reducing costs, and reducing risks is beneficial for everyone in the market, even if it may seem like a bad idea for intermediaries at first.
Historical Perspective
In the past, settlement of an equity stock would take 15 days due to lack of transparency. Brokers would charge fees without transparency about the price, sometimes even charging outside of the range of that day’s price.
ASBA for Secondary Markets
ASBA (Application Supported by Blocked Amount) for secondary markets allows trading based on blocked amounts. While the volumes in both primary and secondary markets are currently low, the regulator expects it to pick up over time.
Narayan mentioned that similar to demat and ASBA, new market practices may take time to gain popularity.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resources like Moneycontrol and NSE India.
Disclaimer: This article is for informational purposes only and should not be construed as financial or investment advice.