Counter Hedging by Brokers

ex Goldman Sachs Trader Tells Truth about Trading - Part 2

The question starts at 1.34
Can you @nithin address this, and that about Zerodha in this context.

When you want to start trading, the first issue that comes with it is that you have hundreds of diffrent brokers.
In your opinion, which criteria should we use to find the right broker? @nithin (This is the Question)

India works quite differently to the US. When he is talking brokers, he is actually meaning people working for brokerage firms who help you with your trades. What we call relationship managers here.

In US, unlike India half of the turnover comes from outside exchanges. Dark pools are in the forefront. Even when trading on the exchanges, order flows can potentially be sold to HFT firms.

And there are CFD platforms, where the platform which is supposed to be a spread betting platform, may be a counter to every trade of yours. CFD platforms typically allow you to trade almost everything that moves. They are ideally supposed to take the order from you, make money on the spread and send the order to the underlying exchange. But many of them don’t send it and become counter to your trade. So they make money, when you lose.

None of this is possible in India. An order once placed with registered exchange broker has to hit the exchange directly. Order flows can’t be sold, CFD platforms are not allowed, and there is no concept of dark pool. So yeah, you need not be worried about these aspects when selecting a broker in India.

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Broadly the question was - can an Indian broker not hedge with/against it’s subscribers in a live trading session.

Like I explained above, not possible to do the way the person has explained in the above video. Which is to be a counter to your trade.

Are CFD legal in India. If not reachable for retailers then also does institutions undertake these contracts.
Is there anything which makes them illegal . For example say I have portfolio worth Rs 20 crore and I hedge that portfolio by undertaking CFD with Zerodha. If both parties that is me and Zerodha are willing to undertake this contract then will regulation have any problems with this.

Illegal in India for retail, SEBI decides what derivative contracts can be traded or not. Btw, OTC derivative products for hedging currency is something banks are allowed to offer corporate. Many times these hedges end up being speculative in nature.

But yeah, it would have been interesting. :slight_smile:

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