Zero brokerage: what does it mean? (part 2)
What is zero brokerage? How does it work?
Search for ‘zero brokerage’ on Google and you are bound to get a lot of results.
These days, it seems that new ‘zero brokerage’ firms are sprouting out of nowhere on a daily basis. RKSV, however, has been a zero brokerage firm since day one. With tens of thousands of customers across the country, trading through RKSV makes up 2% of total trading volumes on the NSE on any given day. It also has the reputation and brand awareness to build trust with its clients. That is why it is the number one low-cost, zero brokerage player in the industry. It is no wonder that zero brokerage is synonymous with RKSV.
Understanding zero brokerage
The concept of zero brokerage may sound misleading. After all, how can a brokerage firm earn revenues if it does not charge brokerage fees?
The reality is that brokerage is a flawed term. Brokerage, in the every-day, traditional sense, is when the trader pays commissions as a percentage of the total value of the trade. This is the fee paid for using the broker’s services.
Even in real estate, a broker earns ‘brokerage’ as a percentage of the value of the real estate property. Similarly, brokerage firms across India charge brokerage in terms of percentage, called basis points. For example, a brokerage firm might charge 2 paisa (2 basis points) brokerage for intraday trades and 10 basis points on delivery trades.
Not at RKSV—we charge zero brokerage, period.
Fixed commission pricing plan
Unlike other brokers, we charge our clients a fixed fee – Rs. 20 per order traded, regardless of size of the trade. This model is used prominently in the West.
Departure from tradition
The traditional way stocks brokers initially ran their business was by charging a brokerage fee each time an order was placed. The amount varied from trade to trade; it depended on the size of the trade. A simple example would be that if you purchased five lots of Nifty Options contracts, your fee would be five times the amount charged if you had purchased just one lot of Nifty Options.
If you think about this from a logical standpoint, it does not make any sense for the customer. Why should the customer have to pay more on a single trade, just because the size of the trade was larger? There is no extra cost for the broker to handle five lots versus just one.
RKSV decided to break this traditional model through its innovative pricing plan.
Advantages of zero brokerage
The zero-brokerage model has many advantages. Along with the low price per trade, the customer can trade comfortably across all segments through a single software (with zero software costs); never worry about orders not getting filled properly, and overall, have greater reassurance of transparency across all his trades.
Customers have now begun trusting the financial services space. This sentence would have been impossible to believe a decade ago. RKSV is working hard to bring that clean image back to our industry.
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