Best Revenue Models of Indian Stock Brokers
Before going into various revenue models of Stock Brokers we need to know in brief about the Stock Brokers.
A Stock Broker is an intermediary between an individual or institution & stock exchanges. An Individual or an institution cannot invest in the stock market directly. To trade on any investment assets, one needs to have a demat & trading account with a stock broking house. Some of the Best Demat Account in India are from MotilalOswal, Angel Broking, Sharekhan, Kotak Securities, Zerodha, etc.A Stock Broker or broking house is a license owner of the exchange who can buy or Sell shares on behalf of any individual or institution.
Revenue Models of Stock Broker
1) Stock Trading
A Stock broker as we know acts as an intermediary also charges brokerage to their clients. This is their major revenue model. Some stock brokers provide flat brokerage charges while some charges percentage of total volume of transactions. There are many discount brokers who charge based on per transaction basis, Zerodha is one of the leading player here. While all the traditional stock brokers charge brokerage as percentage of total transaction. These broking houses also provide multiple types of offers to attract clients.
2) Sub Broker or Franchise Model
A Stock Broker especially the big ones in the industry provides their franchisee or sub brokership to small or medium size businesses. In this business model, the broking house earns money via revenue sharing with the Sub Broker or the Franchise Owner. This is like an in-direct revenue generation for the Stock Broker as they are not involved with the clients directly, there is an intermediary here as Sub Broker. The Sub Broker provides all kinds of services to the clients & the Stock broker generally takes royalty here.
3) NBFC Account
The Broking house also opens NBFC account of its clients. This NBFC account helps the client to get massive volume of exposure atcertain rate of interest. This is like a loan where the broking house charges huge rate of interest & clients do provide such high interest once they start making money. Generally only the big traders or investors take NBFC loan as they are very expensive for a normal trader. Some brokerage house charges 18% interest aswell.
4) PMS or Portfolio Management Services
PMS is for high volume clients or large investors only. The portfolio range starts from INR 25 Lakh onwards. Only few big stock brokers provide PMS services like MotilalOswal, IIFL, AnandRathi, etc. These broking house have massive portfolio holders.
IPO season is one of the most important season for any broking house. IPOs are generally launched when the market is doing great & the sentiments are positive. The model here again is commission. The Stock broker gets the commission if the client is allotted with the IPO. Stock Brokers always eye any mainline upcoming IPO during the year.
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