Why online brokerages might just be cheaper for retail investors

If you are reading this story online, we assume you already know the benefits of the online world. Take for instance, net banking is far more easier than visiting a branch bank, standing in a line and then making that demand draft. In fact, if you plan to enter the equity market, availing the services of an online broker would probably work out cheaper for you than availing the services of a traditional brokerage house.

In fact, according to a report published in the Mint newspaper today, “India’s brokerages are increasingly turning to online discounts to woo retail investors, wary since the 2008 crash, to the equity market by taking advantage of lower overheads to offer rates that are much lower than those charged by traditional houses for such traders”

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[caption id=“attachment_780357” align=“alignleft” width=“380”] The traditional brokerages have a dedicated relationship manager. AFP[/caption]

Of course, this is because the cost of operating a traditional brokerage is much more than an online brokerage. For instance, the traditional brokerage have rental charges, employee cost and like. Since online brokerages don’t have such added cost they have been able to charge a lower charges to their customers. And, even though the traditional brokerage have tried to catch up with discount charges like online brokerages, they still haven’t been able to match the lower charges as online brokerages. Online brokerages have done very well in the US, especially after the 2008 meltdown.

The report also said that, “Fees on delivery-based equity trades have come down to 0.1-0.3 percent from 0.75-0.5 percent over the past one year. For intra-day equity trades, the charges have come down from 0.05 percent levels a year-ago to about 0.03 percent. In the same period, trading commissions in the futures segment have fallen from 0.05 percent to 0.03 percent”

Of course, the traditional brokerages have a dedicated relationship manager, the traditional brokerages have been able to give discounts mostly to larger clients, while the retail investor still have to pay slightly higher brokerage fees. You can read the Mint story here.