The trend of people turning to the authorised person profession has been on the rise. The profession by itself can be highly profitable as several new investors arise every day. An authorised person essentially is an intermediate person between the stockbroker and the client. Several individuals consider becoming an authorised person as it would require low investment and also has great support from the stockbroker. It also provides a chance for the individual to build their own brand.
Before plunging into the authorised person stream, many consider the expenses involved along with the return of investment that they can expect. Typically, the return of investment for an authorised person would not only depend on their performance but also their expertise. But, on average, let us have a look at how much an authorised person can make in a month.
4 Ways to Calculate authorised person Monthly Revenue
There are different ways to calculate how much an authorised person can gain as revenue in a month. Typically, an authorised person will earn a particular percentage as commission from every transaction that their client makes. Ultimately, this commission depends on the brokerage fee charged by the stockbroker. However, there are 4 main ways in which the brokerage of the stockbroker is calculated. By understanding how the brokerage of a stockbroker is calculated, the revenue of an authorised person can be understood.
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Percentage Method
With the percentage method, the amount of revenue that an authorised person earns and gets to take home is determined as a percentage of a certain total amount. In this method of revenue calculation, a certain percentage is decided between the client and the authorised person. For instance, consider a client to have a trading account with ABC trading company. The client decides to buy 100 shares in a particular company.
The price of one share in that company is Rs. 200. So, the capital that the client has to invest is Rs. 20,000. Let us now consider the brokerage charge of ABC trading company to be 0.2%. With such a brokerage, 0.2% of the capital that has been invested by the client will be charged. So, essentially, 0.2% of 20,000 that amounts to Rs. 40 will be charged as a brokerage fee by ABC trading company. The authorised person further earns a set percentage that has been decided between the authorised person and the stockbroker.
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Fixed Brokerage for Lump-Sum Method
Contrary to the percentage method, this method fixes a certain amount that will be charged by the broker irrespective of the capital or the number of trades or transactions made by the user. In the percentage method, the amount that the stockbroker gets is not dependent on many variables. Being independent of such variables is one of the benefits of the lump-sum method. This method has more stability of income as it provides a fixed lump-sum amount irrespective of the situation or circumstances.
For example, consider that a client opens a Demat account with ABC brokerage. In the case of the lump-sum method, the broker would inform the client in advance about the fixed brokerage amount that will be charged. Let’s say that the broker fixes Rs. 50 as a brokerage amount. In that case, irrespective of the value of turnover or the number of trades that the client takes up, the client has to pay an amount of Rs. 50.
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Combination of Percentage-Based and Lump-Sum Methods
This method, as the name says, uses a combination of the percentage method and the lump-sum method. According to this method, the percentage method will be applicable up until a certain threshold of turnover. Beyond that threshold of turnover, the lump-sum method would be used. In the percentage method, a certain percentage of the total capital invested or used by the client is charged as the brokerage fee. With the lump-sum method, a fixed amount is charged as the brokerage fee irrespective of the capital used or the number of trades.
For example, consider the total turnover to be Rs. 10,00,000 and consider the threshold value to be Rs. 1,00,000. According to this combination method, a brokerage will be charged based on the lump-sum method up to Rs. 1,00,000. On the remaining amount of Rs. 9,00,000 (Rs.10,00,000- Rs.1,00,000), the percentage basis will be used.
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Fixed Price Brokerage
This method is where a broker charges a certain fixed amount for a trade irrespective of the turnover or the number of trades. For instance, some brokers charge a flat amount per trade as brokerage charges. For instance, the brokerage per order can be Rs. 10 or Rs.20.
Now, the contract between a stockbroker and an authorised person involves a certain percentage of shares such as a 40% or a 60% commission from the brokerage charges to be transferred to the authorised person.
Conclusion
The amount earned by the authorised person is a commission from the brokerage charges charged by the stockbroker. The authorised person cannot directly charge a commission from their clients.
