Many Indian retail traders review their trading log at the end of the month, see ₹10,000 in gross profits, and wonder why their Demat account balance has dropped. The culprit is execution friction: the combination of brokerage, Securities Transaction Tax (STT), Exchange Turnover Fees, GST, and Stamp Duty.
When trading through discount brokers like Zerodha, Groww, or Angel One, trading charts display gross risk-to-reward (R:R). They ignore statutory taxes that skew actual trade outcomes.
Typical Trading Chart vs Actual Demat Account Reality
| Metric | Gross (Chart) | Net (Real) |
|---|---|---|
| Target | +₹2,000 | +₹1,910 |
| Entry | ₹100 | ₹100 |
| Stop | −₹1,000 | −₹1,090 |
| R:R | 1:2.0 | 1:1.75 |
The Mathematical Proof: Gross vs. Net Risk-to-Reward
A standard chart calculator computes risk-to-reward using raw price levels:
Gross R:R = (Target Price − Entry Price) / (Entry Price − Stop Loss Price)
To calculate True Net Risk-to-Reward, transaction charges must be factored into both execution legs:
- Net Risk = Gross Stop Loss + Buy Charges + Sell Charges (SL)
- Net Reward = Gross Target Profit − Buy Charges − Sell Charges (Target)
- Net R:R = Net Reward / Net Risk
Case Study: A Standard Intraday Equity Trade
Consider a trade taking 1,000 shares of an equity stock at ₹500 with a Stop Loss at ₹495 and a Target Price at ₹510.
- Gross Risk: ₹5.00 per share × 1,000 = ₹5,000
- Gross Reward: ₹10.00 per share × 1,000 = ₹10,000
- Apparent R:R: 1:2.00
Breakdown of Indian Regulatory Charges (Intraday Equity):
- 1Brokerage: Flat ₹20 or 0.03% (lower) per leg = ₹40.00
- 2STT (Securities Transaction Tax): 0.025% on Sell side only = ₹127.50 (Target Exit) / ₹123.75 (SL Exit)
- 3Exchange Turnover Fee (NSE): 0.00297% on total turnover = ₹30.00 (Target Exit) / ₹29.55 (SL Exit)
- 4GST: 18% on (Brokerage + Txn Fee + SEBI Fee) = ₹12.60 (Target Exit) / ₹12.52 (SL Exit)
- 5Stamp Duty: 0.003% on Buy side only = ₹15.00
Total Transaction Friction: ₹225.10 (Target Exit) / ₹220.82 (SL Exit)
The Real Net Outcome:
- Actual Net Risk: ₹5,000 + ₹220.82 = ₹5,220.82
- Actual Net Reward: ₹10,000 − ₹225.10 = ₹9,774.90
- True Net Risk-to-Reward Ratio: 9,774.90 / 5,220.82 = 1:1.87
On higher-frequency or lower-margin setups, friction is even more severe, often reducing theoretical 1:2 setups down to a net 1:1.3.