In this post, you will learn about different types of brokerage firms in India. In addition to the discount and full-service brokerages, I have also described the services offered by scheduled commercial banks and how they offer stock broking services.

3 Different Types of Brokerage Firms

The trading in shares, share indices, derivatives (future & options), currency, commodities, and other financial instruments happens on stock or commodity exchanges in India. In order to trade you need a broker who acts as an intermediary between you and the Exchange. These brokers are registered with the Securities & Exchange Board of India (SEBI).

Essentially there are 2 types of brokerages but I have categorized scheduled commercial banks as the third type. The banks are necessarily full-service agents but they provide a wider range of services.

Full-Service Brokers Or Traditional Brokers

As the name suggests, these brokers provide a full range of services related to different types of securities. They not only provide stock broking services but also all kinds of research, advisory, trading, and, investment services related to stocks, derivatives, commodities, bonds, debt instruments, mutual funds, insurance, IPOs, and other exchange-traded securities.

On the flip side, the broking charges and commissions are generally higher than discount brokers.

Discount Brokers Or Budget Brokers

Discount brokers just provide the sock and derivatives trading services. They do not offer research or advisory services. Many of them also offer trading facilities for commodities and currency.

Generally, their broking charges and commissions are on the lower side.

Scheduled Commercial Bank

Do you remember that time when your bank representative calls you and pesters you for investing in confusing financial products and claims that these can solve all your worldly problems? Well, you and I know that he is just a salesman and wants to push something down your throat. In today’s world, banks have become the one-stop shop for all kinds of financial products, including share trading products.

Most of the scheduled commercial banks provide a full range of broking services. They either have a tie-up with a full-service broker or they have their own subsidiary firm that is a registered SEBI broker. They offer huge convenience to the customer. You can open and maintain all three accounts (savings, trading, and Demat) at the same bank. These are called 3-in-1 accounts.

13 Differences Between Discount Broker And a Full-Service Broker

Brokerage Calculation Example

Let us assume that you are a light trader and you do 1 buy/sell transaction in a week that is worth Rs. 10,000/-. Let’s assume that you would do 50 transactions in a year. Let us see how much brokerage you would pay in different scenarios.

Note: Brokerage is paid separately for buy and sells transactions.

What is the minimum amount you should invest?

Scenario I – Discount Broker

Considering Rs. 20/- as brokerage per transaction, you would need to pay Rs. 2,000/- (20*2*50) in a year. Some brokers charge even less. You can pay as little as Rs. 10/- per transaction which would further reduce your yearly brokerage cost to Rs. 1,000/-.

Scenario II – Full-Service Broker

Considering 0.3% as brokerage per transaction, you would need to pay approximately Rs. 3,000/- (0.3%*10000*2*50) in a year. This is a bit higher than the scenario I but not too high.

Scenario III – Scheduled Commercial Bank

Considering 0.5% as brokerage per transaction, you would need to pay approximately Rs. 5,000/- (0.5%*10000*2*50) in a year. This is substantially higher than the scenario I.

Let’s see what happens when you become an expert trader and start doing trades of Rs. 1,00,000/- per transaction then,

Scenario I – Brokerage remains the same as before.

Scenario II – Brokerage becomes Rs. 30,000/- (0.3%*100000*2*50) in a year

Scenario III – Brokerage becomes Rs. 50,000/- (0.5%*100000*2*50) in a year

Conclusion

If you are a beginner you should not lose sleep over which broker is better for you. You would have noticed that there is a huge competition amongst the brokers. There are hundreds of them. You can go with any popular broker as completion will always keep the costs low and service levels high. In a rare case, if you are dissatisfied with your chosen broker then you can always change it.

You should only decide on the type of broker you want to trade with.

If you are looking for convenience, hand-holding, and a full range of services, you should opt for a scheduled commercial bank as your service provider. On the other hand, if you are looking for a full range of services full service with slightly lesser fees then a full-service broker would suit your needs. Lastly, if you think you can manage on your own and want to trade heavily then you should go for a discount broker.

Over To You

Were you able to decide on the right broker for you after reading this post? Which type broker best fits your needs? What other information would help you? Please leave a comment.

Have a profitable life ahead!

Look no further. I believe after reading this post you will be able to start trading (buying and selling shares) profitably and make some extra money for yourself.

To start investing directly in the markets, you will need 3 different accounts – a Trading Account, a Demat Account, and a Bank Account. In this post, I have explained what are these accounts, what documentation is required to open these accounts, and where can you open them.

Let me take you through the complete process. It is quite simple and completely online.

5 Simple Steps to Start Investing Money In Stocks

Make Sure That You Have Surplus Money

Investing or trading should never be done with the money that can be utilized elsewhere.

You should make sure that you have a steady flow of income from other source(s) that can take care of your living expenses, all your debts are paid off so that you are not losing money on interest payments, and you do not require any additional funds in immediate future, and you have saved some extra cash for emergencies.

STOP! If any of the above is true then you should stop reading this immediately and take care of your funds before contemplating about the share market. You should only invest surplus funds that won’t affect your day-to-day needs.

I found a useful article that can help you in reducing your debt.

https://economictimes.indiatimes.com/wealth/borrow/seven-smart-ways-to-reduce-loan-burden-without-stressing-your-wallet/articleshow/45502314.cms

Collect Documentation

I am assuming that you already have a savings bank account. Nowadays it is extremely rare not to have a savings bank account in India but if you don’t have one then you should read the above point and get your funds in order.

You would need the following documents to open trading and Demat accounts.

Proof Of Identity

You would need to produce the original PAN card during account opening. PAN card is mandatory for trading account opening.

Proof Of Address

You can use any of the government-mandated address proof including Aadhaar card, Voter ID card, utility bills, rent agreement, and Passport.

Proof Of Bank Account

A canceled cheque is required to link your trading account to your savings bank account.

Proof Of Income

This is required only if you want to trade in derivatives (future and options). You can give your acknowledgment of your Income Tax Return (ITR) or Form 16 or 6 months’ bank account statement as proof of income. However, I would advise against trading in derivatives for beginners.

Passport-sized Photographs

Generally, 3 photographers are needed.

Power Of Attorney (POA)

It is required by your broker to place orders on your behalf. Buying & Selling are done in the broker’s name and later proceeds are transferred to your accounts. However, it is not mandatory. As an investor, you have a choice to issue or not to issue a PoA.

Find A Broker

Trading of stocks happens in a stock exchange where all the securities are listed. Most of the trading in India happens on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). But you can’t trade directly on the stock exchange. You have to trade through a broker registered with the Securities & Exchange Board of India (SEBI). The broker or a brokerage firm is an intermediary between a Stock Exchange and you.

https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=30

In the earlier years, before the advent of the Internet, all the brokers used to provide offline services. Today also you will find some brokers providing offline services. These are quite cumbersome and time-consuming. So in this article, I have talked only about online broking.

For more details on choosing the right broker for yourself, refer to the next section.

Open Accounts

As discussed before, you will need 3 different types of accounts. These are:

Savings Bank Account

Generally, everyone has a savings account. But you may or may not want to use your existing account for trading activities. If you want to use your existing account then it will be linked to your trading account. Otherwise, you can open a new account.

Trading Account

This account is used for placing orders in the stock exchange. It is linked to the bank account. Each time you buy shares, cash is debited from your bank account whereas each time you sell shares, cash is credited to your bank account.

Demat Account

In this account, shares are held in a dematerialized form (electronic form instead of physical certificates). It is quite similar to a savings bank account but instead of cash entries, you will see your security holdings in this account. Each time you sell shares they are debited whereas each time you buy shares they are credited to your Demat account.

Start Making Money

This is the final step. Now you can start using trading account application(s) to put buy and sell orders. This is where you start making money. However, you should be careful. Otherwise, things may go south and you start losing money.

Now, the big question is which stocks should you choose? I have given a few pointers in the next section.

Two Types of Brokers

Full-Service Brokers Or Traditional Brokers

As the name suggests, these brokers provide a full range of services related to different types of securities. They not only provide stock broking services but also all kinds of research, advisory, trading, and, investment services related to stocks, derivatives, commodities, bonds, debt instruments, mutual funds, insurance, IPOs, and other exchange-traded securities.

Most of the scheduled commercial banks provide full-service broking. They also offer a 3-in-1 accounts wherein savings, trading, and Demat accounts are held with the same bank. These accounts have their own advantage. You don’t need to go to different firms to open different accounts.

On the flip side, the broking charges and commissions are generally higher than discount brokers.

Discount Brokers Or Budget Brokers

Discount brokers just provide the sock and derivatives trading services. They do not offer research or advisory services. Some of them also offer trading facilities for commodities and currency.

Generally, their broking charges and commissions are on the lower side.

If you are looking for convenience and a full range of services, you can opt for a full-service broker. But, if you want to trade heavily and save on commissions then you should go for a discount broker.

How Can You Instantly Start Making Money From Trading?

Conclusion

I have described a 5 step process to start investing/trading activity. Although the article is a bit long but the process is quite simple. You just need to call your chosen broker and they will do all the paperwork for you.

Over To You

Do you think you will be able to start a profitable trading activity after reading this blog post? What other information would help you? Please leave a comment.

Have a profitable life ahead!

(The names given here are just given as examples of well-known companies offering online broker services, they are neither recommendations nor a testimonial to their performance, and please do research before selecting your broking firm.)

Without any further ado, let’s answer these questions.

What Is The Least Number of Shares That You Can Buy?

One. Yep! That’s the answer to the above question. Let me explain in detail.

On the higher side, you can buy any number of shares that you want. It is only limited by the amount of money you have and the number of shares that are listed on the stock exchange. The only caveat is that you have to buy a whole number of shares and not a fraction.

So, on the lower side, you can buy only one share.

What is The Lowest Amount of Money Needed To Trade Online?

As you know, the share price of different companies is different so your actual investment per share could be as little as Rs. 1/- or as large as Rs. 1,00,000/-. Theoretically, you can trade with only Rs. 1.

But is it practical to trade with one rupee? No. You will always lose money if you trade in such a smaller denomination.

Additionally, most brokers put a minimum limit on the investment. Most brokers would not accept a transaction of less than Rs. 1000/-.

What Is The Smallest Amount Of Money That Can Give You Reasonable Profit?

Most people say that you should start small, learn the tricks of the trait, and then invest large amounts. I whole heartedly agree to that wisdom. But how small is small? Let us understand it through a few scenarios.

For the following scenarios, let us assume that you are dealing with a discount broker who charges Rs. 20/- per transaction as the commission, and (for the sake of discussion) there are no additional charges like annual maintenance charges, Demat charges taxes, etc. Let us also assume that you would make a 10% profit in one buy-sell transaction.

Scenario I

You buy Company X stocks for Rs.100/- and sell them for Rs. 110/- (10% profit). Both buy and sell transactions would cost you Rs. 20/- in commissions. So, your cost is Rs. 40/- (not including the cost of holding the securities) and your profit is miniscule Rs. 10. Essentially, you have made a loss of Rs. 30/- on the whole transaction.

Scenario II

You buy Company X stocks for Rs.1,000/- and sell them for Rs. 1,100/- (10% profit). Both buy and sell transactions would cost you Rs. 20/- in commissions. So, your cost is Rs. 40/- (not including the cost of holding the securities) and your profit is Rs. 100. Essentially, you have made a small profit of Rs. 60/- on the whole transaction.

It is a good profit. In percentage terms, you would have made 6% (60/1000) profit. It is a decent profit but still much less than 10%. Let us look at the third scenario.

Scenario III

You buy Company X stocks for Rs.10,000/- and sell them for Rs. 11,000/- (10% profit). Both buy and sell transactions would cost you Rs. 20/- in commissions. So, your cost is Rs. 40/- (not including the cost of holding the securities) and your profit is Rs. 1,000. Essentially, you have made a good profit of Rs. 960/- on the whole transaction.

In percentage terms, you would have made 9.6% (960/10000) profit. It is very close to 10%.

Conclusion

What is a good investment – Rs. 1,000/- or 10,000/- or something in-between?

10% is a good return. In a real scenario, you may not get it but it gives us a good base for making decisions.

I would say that you should start with a minimum investment of Rs. 10,000/- per transaction. A real profit will give you some satisfaction or a real loss would force you to learn something new. Anything below Rs. 10,000/- may not be worthwhile.

Give it 1 year.

Over To You

What do you think is the lowest good amount? Has your thought process changed after reading this post? Please leave a comment.

Have a profitable life ahead!

In this article, I will talk about the difference between fundamental and technical analysis, discuss the advantages & disadvantages of both methods, and answer if one approach is better than the other. By the end of this article, you will completely understand the basic process of fundamental analysis vs technical analysis.

Note: These methods are also used for trading in other financial instruments like commodities, currencies, indices, and debt.

Difference Between Fundamental Analysis And Technical Analysis

Fundamental Analysis Of Stocks

Fundamental analysis uses a company’s financial data, market, & economic conditions, and company’s management forward-looking statement to predict the future price of a stock.

In this method, an analyst tries to find the intrinsic value of a stock by looking at various parameters. She/he analyzes parameters that are specific to a company e.g Earnings, expenses, assets, and liabilities. She/he compares them against the competition & industry averages and attempts to determine the intrinsic value. The analyst may also consider general economic conditions, market demand, political equations, global constraints, etc. before fixing the value of a stock.

Technical Analysis Of Stocks

Technical analysis uses past price and volume data of a stock to predict future movement in price.

In this method, the stock’s price and volume are the governing factors – the intrinsic value of a stock is not important. The major assumption is that all fundamental factors are known and are factored into the current price; thus, there is no need to pay close attention to them. Technical analysts use stock charts to identify patterns and trends to understand what a stock will do in the future.

Comparison Of Fundamental And Technical Analysis

Purpose               Find the intrinsic value of a stock              find the entry & exit prices of a stock

to determine if it is investible for the future

How                      By studying company reports, analyzing  By looking at historical statistical data on

competition, & understanding the            price & volume and understanding the chart

industry                                                             patterns

Assumption         There is an intrinsic value of a stock         The value of the stock is not important;

But market is mispricing the stock.           Price discounts all the information that is

available to the public & Price movements

happen due to human psychological

behavior

Future Price        Ultimately, market will realize the            Past trend in stock price movement will be

intrinsic value and give a fair price to       repeated in future

the stock

Utility                   It tries to find the undervalued and          It tries to find the perfect timing to enter &

Overvalued stocks                                         exit a stock

Main Function    Investing                                                           Trading

Data Gathered   Financial statements, industry reports,    Charts

From                     competitors reports

Indicators            ROE, P/B, P/E, EPS Growth                          Moving averages, price data, volume data

Chart patterns

Analysis                Historical data, projections, & forward    Historical data only

looking statements

Profit/Loss          Potentially high profit or loss                     Profit and losses are limited

Time taken before

Time taken after

Time Frame        Long term – few months to years              short term – intra-day to few months

Which Approach Is Better For You?

Do you believe in reading charts and looking at trends? If yes, then you have a mindset based on Technical analysis. Or do you believe in making investment decisions based on Financials, Growth, and EPS? Well, then you have a mindset based on fundamental analysis!

No doubt, that some may find both types of analysis useful for examining market action. It’s just that they both have a different School of thought. Your trading style and attitude will determine the kind of analysis beneficial for you.

One approach is not necessarily better than the other. You can use either fundamental or technical analysis to create wealth. Both of them can make money for you.

But many experts use them together for stock picking since both of them complement each other. The former tells us the right stock to buy whereas the latter tells us the right time to buy.

If you have devoted time to stock market analysis you can learn both approaches. You can also use a hybrid techno-fundamental approach to make huge profits.

Final Thoughts On Fundamental Analysis Vs Technical Analysis

Many market experts take a side in the fundamental analysis vs technical analysis debate. They take proclaim that one approach is better than the other.

I believe it is good to understand the difference between fundamental and technical analysis but you can use both of them as appropriate. These are two contrasting approaches to stock trading. One is not necessarily better than the other. They can be used together while analyzing the stocks.

This blog is focused on a technical approach towards stock trading. Most of the blog articles explain some aspects of technical trading. This does not mean that technical analysis has the potential to give us more profit or that fundamental analysis is inherently bad.

We have created this blog so that readers can start profiting from trading immediately. You can start making small profits from intraday trading whereas fundamental analysis may take months or years to create wealth.

Over To You