Last Updated on September 27, 2023 by BFSLTeam BFSLTeam
Table of Content
Introduction
In the dynamic world of stock trading, the relationship between stockbrokers and sub-brokers plays a crucial role. As part of this partnership, stockbrokers typically require sub-brokers to make an initial security deposit to start their sub-broking business. This security deposit is a fundamental aspect of the sub-broker agreement and is designed to ensure the smooth functioning of the partnership. In this blog, we will delve into the essentials of the security deposit, its characteristics, the advantages it offers, and also explore instances where sub-brokers may not be required to make this deposit like a sub broker without deposit.
Initial Security Deposit
The security deposit, often referred to as an initial investment, is a key component of the sub-broker contract. It serves as a financial commitment from the sub-broker to the stockbroker and is used for specific business purposes outlined in the agreement.
1. Deposit Range: Security deposits typically fall within the range of 1,00,000 to 3,00,000 rupees. While some brokers may set a specific amount, others specify a minimum requirement. Sub-brokers can deposit any amount within this range.
2. Business Authorisation: In exchange for this security deposit, sub-brokers gain the authorization to establish a joint venture under the stockbroker’s name. They also receive access to the broker’s trading technology, platform, and research reports.
Also Read: How To Start Business As A Sub Broker
Important Pointers about Security Deposit
Several key aspects of the security deposit and related procedures are worth noting:
- Insurance: Stockbrokers view the security deposit as a form of insurance against any future non-payment of agreed-upon fees or obligations.
- Refundable: Most stockbroker agreements stipulate that the security deposit is refundable and will be returned upon the termination or closure of the partnership.
- Cash or Stock: Sub-brokers can use either cash or stocks as the security deposit, depending on their preference.
- Revenue Sharing: The security deposit amount often influences the sub-broker’s revenue-sharing percentage. Higher deposits may result in a more significant share of revenue.
- Account Opening: Sub-brokers typically open trading or Demat accounts with the broker by depositing the security money.
Understanding the Zero Deposit Sub-Broker Franchise
Now, let’s explore the concept of sub brokership without deposit.
In today’s fiercely competitive market, stockbrokers employ various strategies to attract more business partners and foster growth. One such strategy involves lowering or completely eliminating the requirement for an upfront payment or security deposit. Some brokers may reduce the initial deposit required, while others abolish it altogether, depending on their strategic needs.
Factors such as the sub-broker’s reputation and clientele are also considered when determining the security deposit. If a sub-broker can commit to a minimum amount of trading per month, there’s a good chance that their initial payment requirement may be reduced or waived.
Understanding the Sub Broker Business Model
The Sub Broker Business Model has traditionally been a popular approach. However, there may be alternative methods to engage in this business without the necessity of paying an initial deposit. To gain a comprehensive understanding of this, let’s examine the various prevalent sub-broking models:
- Master Franchise: In this model, a broker firm offers a franchise to an individual or entity for a specific area or city under the firm’s brand name. An initial deposit, referred to as a franchise fee, is mandatory to commence operations. The franchisee also typically maintains a physical location.
- Authorised Person (AP): The AP model resembles a franchise, but the appointed individual or entity is sponsored by a trading member of the exchange. Similar to the Master Franchise model, an initial deposit is necessary to operate under the broker firm’s brand.
- Remisier: A Remisier serves as an agent of the stockbroker firm, representing the firm and earning commissions based on transactions. While the revenue share for Remisiers is usually smaller, a modest deposit is typically required.Introducer: Introducers are agents of stockbroking houses who refer clients to the firm. Once the firm successfully converts a client referred by the introducer, the introducer receives a commission, which may be a fixed fee or a percentage of the transaction cost. Usually, no deposit is required for this model.
Final Thoughts
The world of sub-broker business in the stock market offers numerous opportunities for those seeking a career in this industry. Due to the intense competition among stockbrokers, it’s not uncommon to find offers such as “sub-broker franchise without deposit” or “zero initial investment” aimed at attracting clients and expanding their network.
If you aspire to become a sub-broker or any other type of partner in the stock market sector, it’s essential to carefully consider your options. While some brokers may offer partnership opportunities without a security deposit, evaluating the long-term advantages and the reputation of the broker should be a priority.
In conclusion, understanding the dynamics of the security deposit in the sub-broker business is crucial for making informed decisions and establishing a successful partnership in the world of stock trading.
