STOCK BROKER
We all have heard the name of a Stock Broker. So, in this episode of Vyolve Paisa, we are going to discuss Stock Broker. In the previous episode, we discussed the Stock Market and why it is important for us to know about the stock market. So when we want to invest in the stock market, we need a broker, a platform which will allow us to invest in shares or stocks of companies. But before learning about Stock Broker we will discuss a little about Settlement.
So without any further delay, let’s get started!
Have you ever thought that when you are buying shares in the stock market, then at the same time there will be someone who will be selling the same shares? In the first episode, we discussed the simple rule of Stock Market “if someone is winning then there is someone, who is losing” which means if someone is purchasing then someone will be selling. So, if you want to buy something in the stock market, you can perform that activity only when someone is eager to sell. Well, the question here arises is, how will you get to know if someone is selling or not. Now here comes the platform. The main work of a broker is to list about the securities on a platform where someone who wants to sell securities can do that by specifying the quantity and other details, and the person who wants to purchase the securities can purchase that by looking at the quantity. Now, who acts as a link between both of them?
Assume this way, you have to purchase a security(or stocks) and you discuss it with a person who agreed to sell you the security, but after some time, the person disagreed to it and didn’t sell the security, then at this point of time, this turns out bad. So to regulate this and to check out the settlements in the stock market, there are two people involved. Like we know about the two exchanges in India, National Stock exchange (NSE) and Bombay stock exchange (BSE), they both have individual regulators, who ensure that the settlement process runs smoothly. So for NSE, we have NSCCL which is a company or you may call it a Financial body which ensures that all the settlements made from NSE are carried out without any hindrance. NSCCL stands for National Security Clearing Corporation Limited. For BSE this work is carried out by ICCL which stands for Indian Clearing Corporation Limited.
If you put an emphasis on the full-form of both of them, then you would get a little hint about clearing, which means when you are purchasing or selling the Financial Instruments in the market, then these organisations aim at clearing the whole process. When we buy or sell something in the Stock Market then we don’t get the money immediately, it takes a little time, generally, in T+2 day you receive the money. Say you are purchasing a stock today, then it takes a little time in the process of bringing the stock in your Demat account, the debit of the amount from your bank account, all these processes in combination takes either T+1 or T+2 days in the settlement of the transaction. So this is basic, we will get into more basics in the coming episodes.
“Average Investors who try to do a lot of trading will only make their brokers rich”- Michael Johnson.
So now let’s get back to the main topic, BROKER. Who is a broker? Broker, let’s say, is one of your friends who will help you in investing in the stock market, and will provide you with a platform through which you can invest in a company whose Initial Public offering (IPO) is listed in the stock market. Now there are two types of brokers in India, the Full-Service Brokers and the Discount Brokers. What is the difference between both of these brokers? As the name suggests, the discount brokers might be the broker giving some discounts or something. And Full-Service Brokers might be the brokers providing all the services. Is it? Okay, think this way, what services can someone provide to you in the Stock Market, well this is sure that they provide you with the platform. So the Broker who is providing you with the platform is not going to work for you for free. In fact, in this era, nobody works for free. And brokers are no different, it’s their own business for making profits. So when the Broker helps you out, then he will definitely take a commission for his work. And this depends on, which Broker will take what amount of commission. Some Brokers charge less and some charge more commission. Now the question is, who ensures if the Brokers are working properly or not? The Securities And Exchange Board of India (SEBI) ensures that the processes of stock trading are running smoothly and the listed Brokers do not deal in any fraudulent activities.
So the Brokers take Brokerage Charge, say you are investing in a company, then some commission will be taken by the broker, now here comes the part when there is a difference in the commission charged by the Brokers, some brokers will charge less, some will charge more. Full-Service brokers will provide you with all the services, means along with the platform to trade and research. Now you might be thinking about which research? If you remember from the last episode we discussed that when you are investing in a company then you should know how the company is running, how the company will perform in the near future, so this part constitutes the research. Likewise, Fundamental Analysis for long-term and Technical Analysis for short-term. So the Full-Service broker provides all the research related to your investment. The Full-service brokers also assist their clients by the offline medium, where you can go personally, sit and talk with your broker about your investment and can also do your transactions in the stock market or you can also call him, he will help you and will also provide you with the tips on where you should invest. Now you might get clear about the Full-service Brokers.
Now, what about Discount Brokers? Discount brokers take fewer brokerage charges as compared to the Full-Service broker and when he is charging you less, then he will definitely be providing you with fewer services. The discount broker provides you with the platform but no tips, advice, reports or research. Also, if you call your discount broker, you will have to pay extra charges. And generally, the Discount Brokers don’t have an offline office, so most of the work is done online. So these were the major differences between the two types of brokers.
In India, Zerodha is in the top when it comes to Discount Brokers and in Full-Service Brokers, Angel Investor, Shriram Insight and many more, they have their offices (offline) and also the online platform. So say there is a senior citizen, and they want to do an investment but they are not expert enough, they are afraid about the processes of the Stock Market, then for them, the best one will be the Full-Service Brokers. The Full-service brokers charge a little extra brokerage charge, but they also provide you with extra services, so you would say that it’s worth it.
Okay now take a guess, in India which is the top stockbroker, Full-Service Broker or Discount broker? Think!
We all know, in India people are likely to get attracted to the stuff that costs less. Agreed? We believe that the concept of the Discount broker was first brought in India by Zerodha. Zerodha also provides a better platform to trade and along with it, there are numerous services that the company provides, like, if you want to read and know about the Stock Market, then Zerodha provides you with a different platform for it, which is free, there is also a different platform in which you can do an analysis of the Stock Market, but they charge you for that, kind-of full-time services with different names and platforms. But when there is a person, who is having ample knowledge that he can trade himself, then he goes for Discount Brokers. Coming to benefits, there are lots of benefits that Zerodha provides. Like in the concept of Mutual Funds, we discussed that the Fund Manager on behalf of the people invests your money in the Stock Market. So Zerodha tried to build a new concept, there is a new startup with the name ‘Smallcase’. Smallcase is basically a startup backed up by Discount Brokerage Zerodha. So this concept is similar to the Mutual Funds concept, which provides you with a bucket and there are different stocks in the bucket, and they give you the option to purchase that bucket. And how is that bucket prepared? This bucket is prepared by the researchers.
There is always a fear of losses when investing in the stock market, and we try to minimise those losses. We do this by diversification, and by managing our portfolio. The portfolio is basically a collection of all your financial assets(stocks). Say you took stock from the IT Sector, one from the Automobile Sector, one from the Entertainment sector, by this the risk gets diversified, even if one sector collapses, then the other sector will safeguard your investment. We will discuss Portfolio in much detail in the coming episodes of Vyolvepaisa. So the Smallcase pulls out the advantage here, when Smallcase provides you with the bucket, then the bucket will include the best stocks from various sectors, which makes it easier for you to invest.
So that’s all from VyolvePaisa today, stay tuned for the coming interesting episodes.
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