Trading costs

Brokerage is the fee charged by the broker for executing the order. It can be a flat amount or a percentage of the turnover. In the Indian equity‑derivatives market, most brokers quote a percentage (e.g., 0.05% of turnover) and it is the largest single cost component for high‑volume traders.

Securities Transaction Tax (STT) is a levy imposed by the Government on the purchase and sale of securities. For equity delivery it is 0.1% of the turnover, while for intra‑day and futures it is 0.025% on the sell side. The tax is collected by the exchange and credited to the government treasury.

Other statutory levies include Goods and Services Tax (GST) on brokerage, SEBI turnover fee, exchange transaction charges, stamp duty (state‑specific), and clearing‑house charges. Each is calculated as a small percentage of the trade value and is deducted at the time of settlement.

• GST – 18% on brokerage amount.
• SEBI Turnover Fee – 0.0001% of turnover.
• Exchange Transaction Charge – varies by exchange, typically 0.00325% of turnover.
• Stamp Duty – 0.015% of turnover (subject to state rates).
• Clearing Charge – around 0.002% of turnover.

Each component of the TTC formula has a distinct source. Brokerage is set by the broker, while STT, GST, and stamp duty are statutory. The SEBI turnover fee and exchange transaction charge are collected by the regulator and the exchange respectively, and are usually disclosed in the broker’s fee schedule.

Because most of these charges are expressed as a percentage of turnover, they scale linearly with trade size. However, GST is applied only on the brokerage amount, making it a second‑order cost. Understanding the hierarchy helps you answer questions that ask which cost will change if the brokerage rate is altered.

For the exam, remember the order of calculation: first compute brokerage, then apply GST on that brokerage, and finally add the other percentage‑based levies on the total turnover. Mistaking the base for GST or STT leads to a common error in numerical questions.

The break‑even point for a trade is reached when the profit from the price movement equals the total trading cost. In formula terms, \(Profit_{BE} = TTC\). This concept is frequently tested by presenting a trade scenario and asking for the minimum price move required to cover costs.

Because TTC is a fixed amount for a given turnover, the required price move is inversely proportional to the contract size. Larger contract sizes dilute the impact of fixed costs, while small‑lot traders face a higher percentage cost.

Exam candidates should practice converting the break‑even rupee amount into a percentage return on turnover, as many questions present the answer choices in percentage terms.

Choose a broker with a lower brokerage percentage or a flat‑fee structure for high‑volume trading. Since brokerage forms the largest chunk of TTC, even a 0.01% reduction can improve net returns significantly.

Utilise intra‑day trading where STT is lower (0.025% on sell side) compared to delivery trades (0.10%). However, remember that intra‑day positions also incur higher margin requirements, which affect capital utilisation.

Plan trades to minimise the number of round‑trips. Each entry and exit incurs the full set of charges, so consolidating orders reduces the cumulative cost. This strategy is frequently tested in scenario‑based questions.