Step 3: How to choose a best broker
If you want to become a successful investor using F & O, then this series will definitely help you. So, in this series named Future & Options shorts series I’ll discuss with you the approach where you can start F & O and get silently better return so lets begin with step number three today and understand how to choose a best broker for you.
So friends, My name is CA Arun Tiwari, quickly lets discuss. First thing we will discuss about is whether you should choose a discount broker or full broker and whether you should target a trusted broker or broker who is offering you the lowest charges. Then we will discuss, should you join somebody from link to open account or you should open directly with some broker.
1st thing, why Discount brokers?
Friends let me explain, discount brokers are in trend and they are in right trend because earlier some of you may know that brokers were charging anything and this was ridicules. Now the brokers simply charge per order or per lot. Now there is a difference because some brokers use different language which is called per order or per lot so what’s the difference and which is better , let’s understand:
Some of broker charge 20 rupees per order and some of broker charge 20 rupees per lot. So friends you always should choose 20 rupees per order because even you buy one lot or lot of 100 lots the kind of efforts and kind of services you are using from the broker is same so why more charge for more lots so always choose 20 rupees per order or whatever per order charges and not per lot.
2nd thing let me tell you that why discount broker in a long term which will save a lot of money for us and all the money is going to be directly in your pocket as a return
So suppose you are selling options nifty @ 50 per lot and 50 lots and you will have to pay the premium of Rs.2500. Now if you go with a broker who charges Rs.20 brokerage and also SST and other things but that will be same in all brokers. The only difference is brokerage and GST.
Same way if you open account with full broker like ICICI Direct and say they charge 2.5%. So, in that way ICICI charge 62.5 rupees (i.e. 2500*2.5%) and GST 11.25, being 18% on brokerage and nutshell, if you see in all the orders you place, you have to pay extra charges of Rs.50 per lot, if you go with full brokers.
Now suppose every month, you are going to place 30 call orders and 30 sell orders so total 60 orders. In that case, every month you will going to lose 3000 rupees (60 orders*50) and every year you will lose 36000. Now understand the biggest important point, so if you make a loss in a year of suppose Rs.64000, then that means your actual loss is Rs.100000 (64000+36000). But if you are going to make Rs.64000 profit and then simply your net profit is 26000 approx, why, because you excess payment will eat your gross profit.
Suppose if you have invested Rs.10 Lakhs then the loss will be 360000 and don’t forget you are also losing the opportunity cost on such 360000, so that’s why it is very important to use the services of a good broker and I think this is not a brainer that you should choose a discount broker only you have understood carefully that brokerage should charged on per order and not on per lot.
Thirdly important thing, we have discussed about the charges above, so is the charges only thing we think or there should be other important thing about the trust. Now let me tell you, we are not asking you to trust your broker, we are just asking you to choose broker who has a trusted system of trading.
There are IT infrastructure because now a days every broker heavily relies on their IT infrastructure so if IT Infrastructure is automated then there will be very less manual intervention required, that means that broker will be much better. Why, because machine don’t cheat neither the technology cheat. So, who is cheater, it is the human, so less human intervention so less chances of misunderstanding so always go with a broker who has a reasonably good charges but best IT infrastructure and this is possible only when broker charges reasonable charges.
People say, they know some broker who charge 5 rupee also, so let me tell you if a broker is charging only 5 rupee, he should have almost 3 to 4 times active trading members as compare to zerodha then only you will get the benefit. So, understand if the broker does not charge you well, he will not deploy the best unfractured and there are some chances either the broker is going to cheat you or their employees going to cheat you because they will rely more on the basis of human resources. IT unfractured takes lot of money up front and that’s only a successful broker can use. So always trust a broker who has a trusted infrastructure and trusted system so going with lowest brokerage is not always a best strategy because they own your money and they own your stocks also, they can do anything and has happened in the case of Karvi. So go with a broker that should keep the trust factor.
Next thing lot of people generally ask that there are lots of thing on YouTube and many people ask to open the account from their link so what kind of link I should use, So basically friends, if you are not getting any benefit then please don’t use any link basically see, if you are following somebody and they are giving you good advice and good direction and with the help of their advice you are getting benefit then there is no harm to open an account from their link because you understand, if you open the link that fellow will get something from the broker but he will not charging directly from you so if you are getting a good advice and a good person to follow without paying extra, off course you should use the link but if you are not getting something then its better to open an account directly. So always you have to decide, this is a perk with you. Discount brokers cannot provide you the services like a full-time broker because they are charging you less so they will provide you discounted services also. So, if you want a better support, you have to go to another person. Who are the other persons, if there is a person on YouTube who is supporting you and you are getting benefits then as a good gesture, if you are paying them indirectly without costing to you, it’s not a bad thing but please don’t open your account from a stand up comedian channel link because he will not give you the good advice on the stocks.
So, all these things we tried to tell you in shorts that how you are going to choose a good broker. I my self open an account with Zerodha not because Zerodha is best but maybe it become a second habit and it has a GTT i.e. good till trigger which is very helpful to plan your move in advance.
So this is all about this article and we also have a link from which you will get the support from me. So, with that lets summaries, if you want to choose a broker then the biggest thing to consider is trust and trust on the system. Second thing, the only thing you should count is Discount brokers. Now a days, services which full time brokers provide which includes customer services or other services are not required. Today’s world, we can rely on the app which can be downloaded through mobile.
So that’s all, in the next article we will discuss as how to build your base portfolio and how I have build. If you want to follow me you can follow our telegram channel.