One of the prerequisites of starting a subbroker business is the deposit. It is an amount demanded by the stockbroker to allow a subbroker to associate with them. Some brokers are very specific about the amount of deposit they need, and others will give you a range, which can be between Rs 3,00,000 – Rs 50,000.
Sub broker agreement contains the details regarding the subbroker deposit. It describes the fees, components and other essential information on the deposit amount, which the broker and subbroker must fulfil. One of the significant points of the agreement is the payment of the subbroker deposit to get the rights to do business with the stockbroker.
A subbroker deposit is a one-time payment that every subbroker pay. However, you can open a sub brokership without deposit in some instances. But, before discussing the matter, let us first look at the subbroker deposit and its importance.
Understanding Subbroker deposit:
Subbroker deposit is a one-time fee demanded by the stockbroker to allow subbrokers to do business with them. It is returned and refundable to a subbroker at the termination of the agreement.
Characteristics of subbroker deposit;
- The higher the deposit amount, the higher the commission.
- It works as a guarantee for the stockbroker to safeguard against any future payment failure or delay
- Subbroker deposit has a vital role to play in deciding commission structure between the stockbroker and the subbroker.
- Some stockbrokers, especially the new ones, may offer zero deposit fee partnership as their business policy to expand their subbroker network
- It is mostly returned, refundable at the end of the contract
- Using the deposit, the subbroker opens a DEMAT account with the stock broker to make transactions
Types of subbroker businesses:
Subbroker deposit is often linked to the business model agreed between the subbroker and stockbroker. When we say a subbroker without deposit, a lot depends on the agreed-upon terms of business. To understand it better, let us look at the common subbroker patterns.
AP Model:
- This is a model where the subbroker is registered under the exchange. The AP model also requires the deposit.
Master Franchise:
- A subbroker can obtain a direct franchise from a broking house. The subbroker work under a brokerage house and will have to rent office space to do the business.
Introducer:
- An introducer, allows the subbroker to give prospective clients references to the stockbroker. A commission is given to the subbroker when a client gets converted.
Remisier.
- A Remisier works on a commission basis, usually at a lower percentage than an AP Model or a franchise, and its primary role is to bring new business to the broker. In this model, subbrokers do not carry out any actual transactions.
Other costs of a subbroker.
- A subbroker deposit is not the only cost involved. A subbroker may also have to make initial payments towards renting office space, hiring employees and SEBI registration, and more.
How To Open a sub brokership without deposit
You can make an agreement with a zero deposit. At the beginning of the stock market, only introducers could enter a sub brokership without deposit partnership. But currently, many broking houses have eliminated it or lowered their deposit rate to remain in the competition.
Sometimes, a stockbroker might offer attractive sub brokership without deposit deals to reputed subbrokers who can promise a volume of steady business growth every month.
Before you take the idea of becoming a subbroker without a deposit, consider the long-term benefits. If the stockbroker is new in the industry, you will have to promote their reputation in the market and you must understand their long-term business goals before committing.
Conclusion
To start a sub brokership without deposit business, you need to make an initial payment known as a subbroker deposit with the broking house. It works like a guarantee for an auctioneer against failure of any payment. The deposit amount will vary between the stockbrokers, reputed stockbrokers may charge higher rates than the new ones. But a sub brokership without deposit is also possible, adopted by many stockbrokers in the face of growing competition in the market.