Monday, March 14, 2011

A Guide For Selection of Online Stock Trading Brokers

Stock markets all over the world are booming once again and it is but natural that you must have started receiving tons of marketing calls, emails and SMSes from different stock trading companies and online stock brokers.

With thousands of online stock trading offers, picking the right broker is often a daunting task especially if you are just beginning to trade in the stock markets. Here is a guide that will help you in focusing exactly what you should look out before you take the decision to open stock trading account in India.

1. Account opening charges and documentation

Find out what are the one-time charges for opening a trading account and a DEMAT account. Make sure that you can fulfill the documentation part, that is, you have the PAN card and address proof. Besides, you have to sign couple of legal documents such as broker-client agreements and POA (Power of Attorneys), which mandate court stamp fees. Therefore, ask your broker what are the extra charges (if any) for the documentation.

2. Charges - Brokerage, DEMAT and other statutory charges

Ask for detailed information about brokerage charges for intra-day, delivery, future and options transactions. Nowadays, with fierce competition, you could easily negotiate brokerage charges. For Day Trading, and Future and Options, you could easily fetch brokerage @ 0.005 to 0.05% and for Delivery Transactions, the brokerage rates vary from 0.2 to 0.5% depending upon the volume of transactions.

Check out the minimum brokerage amount payable by you and the details of statutory charges such as ST (service tax), STT (Securities Transaction tax), Turnover Tax, Stamp Duty and Exchange Transaction Charges. Find out what are the various types of charges for DEMAT account, which include Annual Folio Maintenance charges and transaction charges. You must be aware about all these charges because it adds substantially to your expense side and hence can reduce your profits.

3. Margin System

Many brokers allow you to take exposure in the markets for day trading just by paying a small amount, called as margin money. Depending upon the broker, you can get exposure from four to six times the margin amount. Some of the online stock brokers also give you a facility to trade against your shares, which are lying in your DEMAT account opened with them.

4. Online Trading Platform

Nowadays, online stock trading has become very common and popular. However, there are different methods of online trading, ranging from simple web-based applications to high-end online stock trading platforms. Most of the brokers allow you free online trading with their web-based applications but they may charge you software license fee, (monthly or one-time) for allowing you to trade through their state-of-the-art online trading platforms. If you opt for online trading software, you should ask for a demo of online stock trading system.

You might as well request the broker to give you dummy trading id and password for few days to get an idea about various features and tools of the online trading software. Some of the latest online trading platforms provide you multiple market watch, market depth, list of top gainers/losers, list high volume scrips, real-time charts and many other analytical tools and calculators.

5. Funds and Securities Pay In and Pay Out System

Make sure that the broker has a completely online back office, which is essential for monitoring your funds and stocks and for checking the historical reports about your transactions. Look out for the brokers that provide the facility of real-time funds transfer and online funds withdrawal. Check out if the broker has tie-up with your bank so that it becomes easier for you to manage your funds.

6. Contract Notes

SEBI (Securities and Exchange Board of India) has made it mandatory to issue contract notes in the specified formats. Find out how your broker will provide you the contract notes. Most of the online brokers provide ECN (Electronic Contract Notes) free of charges; however, many brokers will levy some charges for delivering physical copies of contract notes.

In the End:

Apart from all the above factors, find out the reputation and trustworthiness of brokers from the actual users through online forums where you can learn about broker reviews. You may also visit Financial Awareness Portal for reviews and comparisons of the top online stock trading brokers.

By: Dhrupad Buch
The Author is a Techno-Commercial Consultant and Freelance Content Writer. Get more info on Financial Awareness Portal and Stock Trading and Derivative Trading
also visit Financial Training:
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