Transaction charges are a major source of income for exchanges and in this article, we will talk about all you need to know about the same.
Similar to other businesses, stock exchanges are privately owned and operate with the objective of earning profits. They, too, operate with the objective of earning profits. In order to earn this profit, they collect various kinds of charges and fees from traders and investors. In this article, we will understand one such charge, i.e., Transaction charges charged by the exchange.
The transaction charges that are charged by the exchange are one type of fee that the stock exchange charges. In return for these fees, members are able to trade in their exchange. Thus, the traders get the trading platform to trade in exchange for fees the transaction charges that are charged by the stock exchange.
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These fees are variable and depend on factors such as trade size and segment. The registered trading members of the exchange need to bear the transaction charges. These charges depend on the volume traded by the clients. This is the reason why brokers charge clients directly in the form of various fees and charges.
While charging fees, overall trading turnover is considered. This means that charges are paid at the time of buying and selling of stocks. The fees are decided by exchanges. So, it is possible that the same segment may have different charges in various exchanges.
Investors can refer to the charge sheet of the respective broker to check the exchange turnover charges that are applied to different segments. As fees charged by different broker varies due to their trading volumes.
On the other hand, the exchanges are charging fees based on the volume of trade of the broker per month. Here is a table representing the fee structure for the trading members of the Equity segment of BSE:-
|Monthly Turnover in Crores (INR)||Transaction Fees of Equity Segment (at Buy and Sell side)|
|Up to 1250||0.00345%|
|Above 1250 to 2500||0.00%|
|Above 2500 to 5000||0.00%|
|Above 5000 to 10000||0.00%|
|Above 10000 to 15000||0.00%|
You can find the Exchange charges mentioned on the Contract Note by the Broker. The broker collects the charges from you and then pays the same to the exchanges.
Let us understand this calculation through the sample trade: -
Suppose the trade has traded in the following manner: -
Buys 1000 shares at INR 100 at 10:00 AM.
Sells 500 shares at INR 110 at 11:00 AM.
5 days later, sells the remaining 500 shares at INR 80.
So, here the trader has sold 500 shares intraday and taken delivery of 500 shares.
The charges will be calculated differently for buy and sell time: -
Buy Time (1000 shares)
Taxable Amount: - 1000 *100 (Buy Price) = INR 100000
Applicable Charges: - 0.00345% of 100000 = INR 3.45
Sell Time: - Intraday (500 Shares)
Taxable Amount: - 500 * 110 (Sell Price) = INR 55000
Applicable Charges: - 0.00345% of 55000 = INR 1.8975
Sell Time: - Delivery (500 Shares)
Taxable Amount: - 500 * 80 (Sell Price) = INR 40000
Applicable Charges: - 0.00345% of 40000 = INR 1.38
The Total Exchange Transaction Charge applicable here is = 3.45 + 1.90 + 1.38 = INR 6.73
Traders and investors don’t have to make the payment of transaction fees to exchange directly. This fee is collected by a broker at the time of trade and submitted to the stock exchanges.
When traders enter into buy/sell transactions, they are not supposed to pay the transaction fees separately. The stock broker directly deducts the fees from the payment of the transaction. These fees break up can be seen in the contract note.
After going through this article, you get a clear idea about what and how transaction charges are levied by exchanges. It’s a type of earning source for exchange that they receive from the broking houses. The fees are paid by trading members through stock brokers. In return for that fees, they get a trading platform through which they could trade.