Advance brokerage system - A TRAP

aircraft · #1 16th July 2008, 12:28 AM

Many brokers today offer advance brokerage system by saying they will reduce the brokerage.

Today I had talks with ventura securites. The guy said He will offer a trading platform on which he charges Rs750/- as advance brokerage which will be adjusted for commissions for every 3 months.

I do not understand how can we pay brokerage in advance without ever trading in the market. Also these type of advance brokerage systems forcibly commit individual for trading no matter whatever the market conditions are. He will be forced to trade just to recover his brokerage. Though brokerage houses claim large volume trades can gain this brokerage back, they dont even mention the real fact that large volume trades equally increases the risk account. In trendless market conditions this risk further gets magnified. Brokerages hide these real facts and they just try to induce to the trade. Brokerage houses know the fact that heavy volume trades attract high risk. Small loss on such a high volume trades can be fatal- wiping of your trade account. Some time you may also end up using their exposure which ultimatley settles for intrest penalties and so on. Brokerages survive and safe guard their brokerages in these ways saying and inducing to trade all the time-even if market conditions do not give the opportunity. It is the market that is giving opportunity to trade not the broking house.

These appear to be tricks of brokers who do not want their quote feed to be offered free for people. They try to collect their maintenance expenses through these advanced brokerages.

Never fall in these traps- Give brokerage only to what you trade, that too after the trade. Never commit for volumes.

good luck- Happy trading

CreditViolet · #2 16th July 2008, 12:35 AM

By big volume they dont mean big lot traders but the number of transactions.These type of deals are suited for Professional to Semi-Pro traders and is actually not a bad deal. Also the large volume traders usually are intraday scalpers who are not dependent on big trends and the experienced one can etch out a profit even in the most choppy market conditions.Yes, these type of deals are not suited for the part-time traders but the part-timer hardly knows how/what/when he is going to trade, the brokerage should be the least of his worries really.

aircraft · #3 16th July 2008, 12:42 AM

What is the necessity of giving advance brokerge boss. Let them take their share after the trade. Why in advance? Any how the client has his margin with broker so deduction of brokerage should not be a problem for them. I do not really understand why in Advance you should pay.

CreditViolet · #4 16th July 2008, 12:48 AM

Quote:

Originally Posted by aircraft

What is the necessity of giving advance brokerge boss. Let them take their share after the trade. Why in advance? Any how the client has his margin with broker so deduction of brokerage should not be a problem for them. I do not really understand why in Advance you should pay.

Because you can cut a deal and pay less brokerage if you do a large no. of transactions.

aircraft · #5 16th July 2008, 12:57 AM

One need not strike a deal of advance brokerage system just to claim or make clear to the broking house that he is active trader. Brokers automatically settle for a lower brokerage by seeing the heavy volumes. Brokers often settle for low brokerage deals on talks without loosing the customer-of course the competition also plays. I think this should not really matter.

rkkarnani · #6 16th July 2008, 09:16 AM

Quote:

Originally Posted by aircraft

One need not strike a deal of advance brokerage system just to claim or make clear to the broking house that he is active trader. Brokers automatically settle for a lower brokerage by seeing the heavy volumes. Brokers often settle for low brokerage deals on talks without loosing the customer-of course the competition also plays. I think this should not really matter.

HDFC Securities offer a flat brokerage of Rs.9999.00 paid in advance, valid for three months or Rs.99.00 Crores, whichever is earlier!!!! (There trading platform is lousy, that is besides the point)
No brokerage house can match this LOW brokerage!!!!
Advance Brokerage is useful for High Volume traders!!!! People scalping for smaller profits can benefit from lower brokerage!!! If a person is having a BIG turnover , he MUST opt for lower brokerage, even if he has to PAY IN ADVANCE!!!

omkarmango · #7 16th July 2008, 08:10 PM

Quote:

Originally Posted by rkkarnani

(There trading platform is lousy, that is besides the point)

why the hell these 'low brokerage' houses always have a lousy platform.

Is this mandatory by SEBI or what?

...like ..low brokerage must be accompanied with dumbest platform.

aircraft · #8 16th July 2008, 10:26 PM

Why on high volumes you should pay advance brokerage. Is it to guarantee the brokerage house that you will trade high volumes- or in anticipation of high volume trades striking a deal before hand without ever knowing what market does in three months or for the duration of advance brokerage from now: I dont understand what for actually advance brokerage system is designed for? If your brokerage is kept low by advance brokerage then you are a sure price catch for brokerage houses who pays money in anticipation of making money in future.

Why pay in advance just to say and convince brokerage houses that you are a heavy volume trader. Let your transaction slips speak out what a kind of trader you are. Let your professional trading skills speak out to them which identifies you as a heavy volume trader. Lower bargain brokerages follows next.

Hint: A professional trader already posses full knowledge of markets and his broker. He always tries to minimize his expenses and try to maximize profits. His stand will be in maximize profits, not maximizing volumes or trades to please brokerage houses. So how come a professional trader will undertake a advance expense of brokerage without ever knowing his risk to reward ratio well before committing to the each trade.Only beginners in enthusiasm get attracted by such things until they come to know what has really happened. By that time they will been skinned to bones without any flesh left.

So say no to advance brokerage Pay only for what you trade- only after the trade

ratan jain · #9 16th July 2008, 10:42 PM

Skinned to the bone in rs 750?

Man, a really frail trader

You better not try to trade in the markets then you may end up without even the bones!

By the way, if you have to pay advance brokerage, it means you lack basic negotiation skills.

All brokerages negotiate, you just need to know how far they will go.....meaning, try and find out what bkg that broker has charged to various people, something you can ask here on this forum.

Nowadays, its quite easy to negotiate with brokers, given the vanishing accounts.

In fact, they may even treat you to lunch while you negotiate

And yes, agree with your point that newcomers get seduced with these schemes.
The average bkg with a well known online broker over 10,000 accounts was 275 rs per month.

So, if they make u commit to 500 or 750 a month, they are doubling their realisation, or rather, you are doubling their realisation.

aircraft · #10 17th July 2008, 12:00 PM

Ratan Jain, how can ‘you’ say and conclude that a person with a trading capital of 750 Rs is a frail trader. It is the trading skill that matters not the trade capital. Generally who trades with Rs750 boss? You did not understand the scene. This 750 would be recurring cost for every 3 months even if you trade or not trade. Apart from this your margin money or trading capital is separate. To earn that 750 or 275 in your case or see HDFC part in this post, which says 9999 for 3months, one has to do hefty trading.

It is that hefty trading which skins you, not Rs750. No body ever trades with Rs 750. Even if he trades why even loose rs750 or does Rs750 not matter you much. Is a regular loss of 750 acceptable to you? You should be calculative up to the tick in the market. Why try to loose even 750 thinking it is nothing when compared to the huge trading capital. A Gain of 750 would be a welcome but losing a single rupee to market is not the idea behind the trading. Refuse to give money to the market is the preamble of successful trader. Though he cannot be right all the time he sometimes looses money. There are always losing and winning trades. That’s OK But before entering the trade, making up mind to bear a loss of 750 and satisfying oneself saying 750loss is nothing much and concluding that I would not be skinned to bones by 750 loss is a sign of bad trading.

The realization goes for three months not for a month. Rs275 per month, which works out to 825 per quarter or 3months, is much more than 250 per month or of Rs750 per quarter. If this is the case how I am doubling their realization?