Please read part 1 before reading this article further.
Just by spending Rs. 5 Lakh, the company XYZ Metals has increased the value of the company by say .5%. Isn’t it a good move? It definitely is. Now what has the broker got to do with this? Let us assume that this move was not initiated by the metal company. But the broker took the initiative and started this whole thing. So is it beneficial for the broker house? Yes it is.
Assuming that to send 5 Lakh customers, the network operator charges say 10 paise per message the cost to the broker house is about Rs. 0.5 Lakh. Do they recover it? Assuming that 10,000 shares are traded and the share value is Rs. 380 and it amounts Rs. 38 Lakh. Broker gets a commission of 1%. That is Rs. 38,000 for either just buying or selling. Both the seller and the buyer have to pay commission and that is a nice thing. Broker makes money no matter either of the party is in loss or gain. So the broker gets a cool Rs. 76k for the brokering the deals. The broker house makes a profit of Rs. 26k just by sending a message to the customers.
Assume that both the Metal Company and the broker house make a deal and the company says it will give around Rs. 1 Lakh for sending out the messages to the customers and the broker house ensures it has a deal with the network operator telling that, if you can reduce the price then I will advertise frequently. The network operator will be more than happy to do that and he will be willingly to reduce the price say 5 paise per message. Who knows it can be 1 paise per message. It hardly costs them anything once the infrastructure is in place.
In the whole process, the broker house is benefitted most when compared to others. It makes a very decent amount of money just because it has customers. Broker house will always make money no matter what the situation is. Even if the market is sinking or growing, the broker house will always pocket money. Next time you get a message just think over.
Engineer's Finance 