A sub-broker is an individual or a firm that acts as an intermediary between a stockbroker and clients who want to trade in the stock market.
In India, sub-brokers are registered with the Securities and Exchange Board of India (SEBI) and are authorized to offer stockbroking services to clients.
Types of Sub Brokership
There are two types of sub-brokerage in India:
Franchise sub-broker: A franchise sub-broker is an individual or a firm that has a franchise agreement with a stockbroker.
The franchise sub-broker is authorized to offer stockbroking services to clients under the brand name of the stockbroker.
Authorized person: An authorized person is an individual or a firm that is authorized by a stockbroker to offer stockbroking services to clients.
The authorized person operates independently and is not associated with the stockbroker’s brand name.
Zerodha Franchise is a great example of Authorised Person Business.
Benefits of Sub Broker Business
Low investment: Sub-brokers can start their business with a low investment, as they do not need to invest in technology, infrastructure, or manpower.
High commission: Sub-brokers earn a commission on the trades executed by their clients. The commission can be as high as 50% of the brokerage charged by the stockbroker.
Access to a large client base: Sub-brokers can access the client base of the stockbroker, which can help them to expand their business quickly.
Training and support: Stockbrokers provide training and support to sub-brokers, which can help them to acquire knowledge and skills required for the business.
In order to get these benefits, you can connect with Angel Broking Franchise, and they offer everything mentioned here & more.
Drawbacks of Sub Broker Business
Dependency: Sub-brokers are dependent on the stockbroker for the technology, infrastructure, and back-office support. Any issue with the stockbroker can impact the sub-broker’s business.
High competition: The sub-broker business is highly competitive, with many players offering similar services.
Compliance: Sub-brokers need to comply with the regulatory requirements of SEBI, which can be time-consuming and costly.
Limited revenue streams: Sub-brokers earn commission on the trades executed by their clients. They do not earn any revenue from other services offered by the stockbroker.
Challenges of Sub Broker Business
Client acquisition: Sub-brokers need to acquire new clients to grow their business. This can be challenging, as clients are often loyal to established players in the market.
Technology and infrastructure: Sub-brokers need to invest in technology and infrastructure to offer seamless services to their clients. This can be a challenge for those with limited resources.
Risk management: Sub-brokers need to manage the risks associated with stockbroking, such as market volatility, client defaults, and regulatory compliance.
Brand building: Sub-brokers need to build their brand to differentiate themselves from competitors and attract clients.
How to generate Income in Sub Broker Business?
Commission on trades: Sub-brokers earn a commission on the trades executed by their clients. The commission can be as high as 50% of the brokerage charged by the stockbroker.
Referral fees: Sub-brokers can earn referral fees by referring clients to other service providers, such as insurance companies, mutual funds, or financial planners.
Advisory services: Sub-brokers can offer advisory services to their clients, such as research reports, investment ideas, and market insights. These services can be charged separately or included in the brokerage charged on the trades executed by the clients.
Margin funding: Sub-brokers can offer margin funding to their clients, which allows them to trade in the stock market with leverage. The sub-broker earns interest on the margin funding provided to the clients.
IPO distribution: Sub-brokers can distribute initial public offerings (IPOs) to their clients and earn a commission on the allotment made to their clients.
Value-added services: Sub-brokers can offer value-added services, such as online trading platforms, mobile apps, and research tools, to attract and retain clients.
Conclusion
In conclusion, sub-broker business in India is a lucrative opportunity for individuals or firms who want to offer stockbroking services to clients.
While there are benefits and drawbacks associated with the business, the key to success lies in managing the challenges, building the brand, and diversifying the revenue streams.
With the right approach and mindset, sub-broker business can be a rewarding and fulfilling venture.
