I can sell 1 Lot of bank nifty worth 6.9 lakh (15*46000) with only 1 lakh rs in my broker account.
Imagine, a black swan event, where Bank Nifty moves 20% in 1 second (Nuclear or technical bug, any reason). i will lose 1 lakh 38 thousand. 38 thousand more than what is in my broker account.
How can I stop my broker from asking me more than I had put?
If I trade using a company account, I can declare my company bankrupt, and avoid paying 38000 to anyone. My personal wealth will be protected. But I can’t trade using company account due to rules.
Is there any other way to protect personal wealth from trading loss?
Hedge the trade, in this case BUY PE. Ofc it is not free lunch but a premium that you pay. (like insurance)
Such far OTMs are not very expensive for black swans.
For options writing / Futures contracts these risks exist, it is limited when buying options.
(crude contango has only happened once till date)
No, I am not talking about protecting myself like that.
I am talking something I can do outside broker to protect it like forming company.
Buying OTM PE etc can always fail due to technical bug etc
Of course, even If i trade using my company, I will try my best not to lose money, i will buy hedge. But I want a solution where, no matter what, even if probablity is 0.0001%, i am protected.
Some options buyers tried to place exit order for Sensex. It didn’t get placed. They placed them again 2-3 times. And after sometime, all orders got executed. So buyers risk is also unlimited due to tech risk.
Sir, would you be interested in creating an insurance product for Kite, where you agree to not charge the user more than the amount they have deposited in their broker’s account?
For example: If a user deposits 1 crore INR in Kite and somehow loses 1.1 crore due to any reason (black swan event, technical bug etc.), then their account balance will be negative 10 lakh in Kite. Basically, the user will owe you a loan of 10 lakh. But with the insurance, you waive that amount and reset the account to zero.
The chances are that no one will ever need to claim the insurance because SEBI has good margin rules. But for paranoid people like me, it will bring peace of mind."
But here is something we had shared last Decemeber.
The net worth of the business today is ~30% of all funds that clients park with us at any given time. At 30% of our own capital as a percentage of total client funds being handled, we are probably among the safest brokers around the world in terms of capitalisation. We have also been a zero-debt business from the very beginning.
Even if all our customers somehow lost 130% at the same time, we’d still be okay as a business.
Since you shared sensex example, I can share my experience. Last day , I too had issue with exiting a sensex option due to volatility.
When ever one sell order get into the system, remaining sell orders won’t get executed for the buyer up until the maximum of their capital. So that’s an insurance for the buyer. No safety net for the seller when he is against the trend.
I WOULD LOVE TO HAVE A SCENERIO, WHERE WE CAN ALLOT CERTAIN AMOUNT OF FUND TO PARTICULAR TRADE WITHIN ZERODHA, REGARDLESS OF OUR ENTIRE BALANCE. BUT I DON’T THINK ANY OTHER BROKER DOES IT.
