When I started publishing articles on terminologies associated with Stock Market and then I was getting queries from a few of my investor’s friends who were trying to understand What is Trade Value in the Stock Market. I recalled an incident when I got scared to hell seeing the trading value message from NSE at the end of the day. For a few days, I was a bit confused why I’m getting this message even when I’m not trading for that much volume.
Finally one day I sat down to understand how the trade value gets calculated at the stock exchange level and how does it work for us and the broker. Let’s understand the same.
What is Trade Value in Stock Market with Example?
Let’s break the term trade value into two words to understand in layman’s language. Trade means buying and selling of stocks whereas value means the worth of money invested. If we combine the meaning of both words we can derive trade value means the worth of money invested in buying and selling of stocks. In other words, trade value is the multiplying volume( number of shares) with the share price. To simplify this let me take a simple example with an SMS screenshot received from my broker:
However, I don’t have this much balance in my trading account that I could trade on a particular day but still, I received a message from NSE. Let me tell you NSE has calculated this trade value for a total number of transactions carried on 26th August be it a buy or sell. Well on that day, I bought 100 shares worth Rs 300 each, and before the day’s end, I sold 50 shares off at Rs.311. After that, purchased 25 shares of another company XYZ at Rs.623/-
Buy Transaction for ABC Company= 100*300 = Rs.30000
Total Buy Transaction for XYZ Company= 25*623= 15575
Total Sell Transaction = 50*311= Rs.15550
Grand Trade Value= 30000+15575+15550= Rs. 61125
Hope now you can easily relate to how the trade value calculation happens and what is it actually.
When you trade-in securities then you’re taking risks. There is always a chance of losing your money. However, successful investing is managing your risk efficiently which results in gains for you. Where there is a risk, there is a return. You don’t get rewards without taking risks. Therefore when you take risks and trade in the stock market then you manage multiple risks at a time while parking your money. I’m not trying to scare you but in case you’re trading in the stock market do take care of these trade risks involved: Market Risk, Business Risk, Liquidity Risk, Taxability Risk, Inflationary Risk, or Regulatory Risk.
How Does It Work?
While investing in shares, which one is to look at Trade Value or Trade Volume. Well, Trade value is critical for the broker as it is the amount on which your broker calculates the brokerage of your trade. Therefore, trade value gives a clearer picture when you estimate your broker charges. Let’s understand this with Zerodha Brokerage Calculator. Let’s say you purchased 400 shares of company ABC at Rs.100 and sold off Rs.110 by day closing.
In the above image, you can see turnover is nothing but the traded value, and brokerage is charged at 0.03% or Rs.20 per executed order whichever is lower.
Brokerage = (0.03*84000)/100= Rs.25.2/-
In the same scenario, your brokerage will not be going to exceed more than Rs.40 in any case however on the basis of buy/sell price your profit/loss will vary.