Thursday, June 07, 2007

Brokerage rates

i am going to write a small paper on the benefits of lower brokerage for both traders and brokers
its basically about symbiosis.
instead of leeching and sucking a trader dry if a broker gives very very low rates and a trader has a system that can compound money. The brokerage will grow at an insane pace along with account equity
I sent the following msg to my rm who is working with indiabulls

I am going to work the example with rm/indiabulls structures
Raja: if i start with
0.5% delivery brokerage
my account equity = 10 lakhs
becomes 40 lakhs over say x years
net brokerage u get
based on average equity during those x years
15 lakhs * 1000 trades * 0.5%* 2 = 150 lakhs

if you charge me 0.1%
my account equity goes from 10 lakhs
to 12164 lakhs
your net brokerage
600 lakhs * 1000 trades * 0.1% * 2 = 1200 lakhs

the equation becomes twisted if there is a bare min that indiabulls will keep
and then it will share the remainder between rm and the
lets say the bare min that indiabulls wants is 0.1% delivery in that case
the rm will only earn in the first scenario , in the second scenario the rm is not making money

if indiabulls keeps lets say 0.05%
and the remaining brokerage it gives 1/10th to the rm as incentive
then in the first case
the rm gets 10% of 90% of 150 lakhs =13.5 lakhs
in the second case the rm gets 10% of 50% of 1200 lakhs = 60 lakhs..

Anyway i don't have exact ratios cutoffs incentives etc
but i am sure the numbers can be crunched to find exactly how much everyone will make.

I will post a detailed backtest report with diff brokerage rates on 2 systems
and illustrate net brokerage earned etc. later

No comments: