High-frequency traders must be highly cost-conscious while choosing brokers

Platform reliability, time to meet margin calls are other key criteria for traders while selecting a broker

Despite 2022 being a turbulent year when the Nifty 50 total return index barely managed to eke out a return of 5.7 per cent, 27.7 million demat accounts were added. This was only slightly lower than the 30.8 million accounts added in 2021 when the index had given a blockbuster return of 25.6 per cent. When entering the equity markets, investors need to choose their stock broker judiciously.

Price paid should match service

Minimising the brokerage fee is important since any amount saved here will augment your returns. High-value and high-frequency traders need to be especially cost-conscious. However, the pricing decision should also be made in the context of your needs.

On delivery-based trades in equities, a player like Zerodha today offers zero brokerage. Brokerage rates have come down overall. “Currently, they have converged to Rs 15-20 per order,” says Vikas Singhania, executive director, Trade Smart Online.

Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm, suggests that those who do a lot of trades should opt for a monthly subscription plan that allows them to pay a fixed amount and carry out an unlimited number of trades.

People who are not tech savvy and want a relationship manager to hand hold them the entire day should be prepared to pay a percentage (of purchase or sale amount) fee.

Traders should apply stringent criteria

Traders should look for a platform or app that has an intuitive, easy-to-use interface. The platform should also be reliable and have low downtime (check social media for feedback on this count).

Technical traders should look for charting tools. “Algo traders should go for a platform that enables their trading software to plug in easily into the broker’s platform and function smoothly,” says Jain.

Platforms that execute trades with a discernible lag should be avoided.

Option traders should check if the platform will allow them to trade in these instruments. “Those who want to trade in out-of-the-money options or deep-in-the-money options should check for the availability of these instruments,” says Jain.

Traders should also check the broker’s policy regarding margin calls. “Some brokers give a margin call on day one and square off the position the next day. The customer gets 24 hours to make good the margin shortfall and maintain his position. Others square off positions on the same day,” says Jain.

Buy-and-hold investors shouldn't overpay

Buy-and-hold investors have less exacting requirements than traders. Nonetheless, they should also go for a platform that executes their orders reliably. They shouldn’t pay a hefty brokerage fee, especially for services they won’t use.

“The platform should allow these investors to track their portfolios easily. Long-term investors may not want to track their investments every day. But a feature to look for is the ability to set price alerts so that they are clued in if a big event affects any of their holdings,” says Mohit Mehra, head of IPOs, Zerodha.

Check social media reviews

Since the long-term safety and security of holdings is paramount, all investors should check reviews about the broker on social media. “Avoid any broker about whom there is a buzz online that it is delaying payouts,” says Singhania. He also suggests checking the NSE’s website for complaints as a percentage of the number of customers.

The broker’s customer support mechanism must be robust. Its phone line should not always be busy when you call for help.

High reporting standards  

An often overlooked but important criterion is the dependability and usability of the brokerage platform’s reports. “The stock brokerage should provide reports on the profits and losses of your trades in a granular format. More importantly, it should provide you with a report that makes it easy for you to file your tax return at the end of the year. Your chartered accountant or you should not have to invest several days on compiling this information,” says Mehra.

Despite your efforts, if you still end up with a broker you are not satisfied with, then don’t hesitate to switch since doing so doesn’t carry a heavy cost these days.

Don’t rely blindly on brokerage reports

• Use brokerage reports to glean valuable information about the stocks you are interested in
• But have your own system for trading or investing, instead of relying on the brokerage house’s buy and sell calls
• Brokerages’ institutional compulsions, like the fear of loss of investment banking mandate from the concerned group, at times prevent them from writing negative reports on companies  
• Writing negative reports also cuts off the analyst from information flow from the company
• Keep execution and advice separate: relying on a Sebi-registered investment advisor who offers advice on stocks may be a better bet