The brokerage calculator is designed to help traders and investors calculate transaction costs before trades. It can calculate the brokerage fee itself, along with other charges such as Securities Transaction Tax (STT), exchange transaction charges, GST, SEBI turnover fee, and stamp duty. By having an idea of these costs, one can plan trades accordingly and avoid being surprised by deductions from the profit. Unfortunately, many traders commit mistakes unknowingly when using a brokerage calculator, leading to inflated costs. Five such mistakes are discussed below, along with how to avoid them.
1. Failing to consider all applicable charges
Another common mistake is checking the basic brokerage fee using a brokerage calculator, forgetting about the rest of the charges. The transaction costs are comprised of several parts: exchange transaction charges, GST, SEBI fees, plus the stamp duty, along with brokerage. If you leave out any of these from your calculations, you might underestimate your total cost.
2. Not differentiating between intraday and delivery trades
Intraday trades incur a lesser brokerage charge compared to delivery-based trades, but it happens that taxes and other charges differ. If brokerage calculators are used without specifying the type of trade, they won’t give an accurate figure from which to determine the actual cost.
3. Not remembering both sides of the trade
Only some people calculate charges for buying or selling a stock, and none for both. Often, there are charges incurred on either side of a trade. Even if a trader puts most emphasis on low brokerage charges, the total will get doubled with costs from both buying and selling.
A brokerage calculator generally has fields representing quantity, price, and trade type. To get an exact view of your expenses, run the computation for both buy and sell transactions. This way, you can assess the overall profitability after incorporating the full cost of the trade.
4. Assuming instead of Real Trade Data
Another common mistake is to use estimated numbers rather than actual prices and quantities. For instance, a trader may just use some shared number like ” ₹100 a share, ” whereas for their actual execution price, it was 102.50. The results of the brokerage calculator will change, however slightly, fully depending on the price or quantity used, especially when large amounts are traded.
To do this, instead of using estimates, the user must input the exact order as it is recorded in the contract note into the brokerage calculator. In this way, one can get a straightforward breakdown of the charges, as well as any shock in profits and losses.
Many traders and brokers miss out on per-trade costs. Still, they fail to notice how the total keeps adding up every time one executes a trading activity.
Even with a low brokerage fee, many trades in a given period added together can amount to quite a hefty sum. A brokerage calculator can assist in determining not just for each possible trade but even for entire months or years in some cases.
You may want to decide how much you want to take in your online calculator by entering your average trade size and how often you have traded into the calculator, and approximately how much in charges, and see how these habits affect your general picture as far as costs.
How to Use a Brokerage Calculator Effectively
Follow these steps to make the most of a brokerage calculator:
Select the appropriate trade type: intraday, delivery, futures, or options.
Enter details of the trades, such as the price, quantity, and segment.
Include both the buy and sell sides for the trades.
Take into account all transaction costs: future components are brokerage, taxes, and exchange fees.
Check out the effect on an ongoing basis: monthly or yearly recurrences on costs depending on trading patterns.
When you do this according to the exact data that is coming from all your trades consistently using the brokerage calculator, there are high enough chances to plan your trades more effectively and have better control over the costs.
Final Remarks
A brokerage calculator is one such tool that is quite valuable in managing costs in trading. Missing out on the details could mean spending even more than what you expect on expenses. All of the following five mistakes, such as omission of all charges, wrong selection of trade type, one-sided transaction, assumptions replacing actual data, and ignoring cumulative costs, make your cost-awareness and hence decision-making better.