Understanding Intraday Trading Brokerage Fees in Commodity Markets: A Practical Example

When engaging in intraday trading, it is crucial to understand the various charges and fees involved in the process. Let's explore a practical example using the commodity market, specifically focusing on crude oil futures, to illustrate the overall brokerage charges.

Intraday Trading vs. Discount Brokerage

Traders often opt for trading with a turnover-based account over discount brokers because of the direct market access it provides. Turnover-based accounts offer a more straightforward calculation for brokerage fees, based on the total turnover in the trades. In contrast, discount brokers may offer lower fees but can be less transparent in their charge structures.

For this example, we will use the least possible brokerage fee of 100/cr. This fee structure assumes that the brokerage is charged based on a fixed rate per crore (100 lakh) of the turnover.

Example Scenario

Let's assume we are trading 200 lots of Crude Oil Mega with a buying price of 3900 and a selling price of 3905. The trading quantity is for 100 crude oil barrels.

Buying:

Price: 3900 Quantity: 100 Trade Value: 3900 x 100 390,000 cr (39 lakh) Total Trade Value for 200 Lots: 390,000 x 200 78,000,000 cr (78 crore)

Selling:

Price: 3905 Quantity: 100 Trade Value: 3905 x 100 390,500 cr (39.05 lakh) Total Trade Value for 200 Lots: 390,500 x 200 78,100,000 cr (78.1 crore)

Total Turnover:

Total Sells: 78.1 crore Total Buys: 78 crore Total Turnover: 78.1 crore (sells) 78 crore (buys) 156.1 crore

Calculating the Brokerage Fees

With the least possible brokerage fee of 100/cr, the total brokerage would be calculated as follows:

Total Brokerage: 156.1 crore x 0.1% 156,100 cr (1.561 lakh)

Profit Analysis

The gross profit from this trade, considering the buying and selling prices, is:

Gross Profit: 3905 x 100 x 200 - 3900 x 100 x 200 (3905,000 - 390,000) x 200 100,000 cr (10 lakh)

It is essential to note that the brokerage fee of 1.561 lakh rupees is a significant portion of your gross profit of 10 lakh rupees. This underscores the importance of a thorough understanding of brokerage fees in your trading strategy.

Additional Considerations

In addition to brokerage fees, traders should also account for other charges and taxes that may apply. These can include:

Stamp Duty TDS (Tax Deducted at Source) Commodity Transaction Charges (CTAC)

These charges can significantly impact your overall profitability. Therefore, it is wise to have a comprehensive understanding of all applicable charges to optimize your trading strategy.

Direct market access and a turnover-based account are valuable tools for intraday traders. However, the specifics of the trade, such as the quantity and price, can significantly influence the overall brokerage fees and profitability. A careful analysis of these factors is crucial for successful trading in the commodity market.