Firstly intraday leverage is offered by discount, full service (all kinds of brokers).
Intraday leverage
When you buy/short stocks, exchange doesn’t ask for 100% of funds or stocks instantly. They block a VAR margin (approximately 6.5% and upwards, increases with volatility of the stock) - on both Buy/Sell trades. The settlement happens on T+1 and T+2 day. So if a broker is allowing leverage for intraday, he isn’t really doing with his own capital (to the extent of intraday leverage provided). So if it is 8% for Reliance, then upto 12 times leverage broker can provide without his own capital. Post 12 times, any further leverage provided, margin gets blocked from brokers funds.
With regards to F&O - most contracts are already leverage 4 to 8 times (higher in currency/commodity). That is the nature of derivative contracts. If a broker is offering leverage intraday, it would be getting blocked from his capital (btw, with all the new regulations coming in, I don’t think brokers will be allowed to offer intraday leverage in F&O soon). I am guessing u telling x8, x10 is basis brokers who block between 25% to 50% of overnight margin requirement for option writing for intraday trades.
Why do brokers do it?
Traditionally brokers have earned a % brokerage. So higher the value of the trade, the more the fees generated. So it is a no-brainer on why traditional brokers offered leverage.
When we started flat fee pricing model where there is no incentive in offering leverage, we were kind of forced to offer some leverage as it was the industry norm. We have never competed with others on high leverage.
Why not compete?
Leverage is like WMD (weapons of mass destruction), most people don’t know how to handle it. Higher the leverage offered, more people burn out trying to use it (there is enough data to prove this) If we had an option, we would keep it as low as possible. Unfortunately to stay competitive we are required to offer.
Brokers risk?
Yep, that is the nature of this business (similar to insurance companies) - risk management is the key. The day shit hits the roof (happens once or twice every decade), some brokers are going to go bankrupt. There will be no way to manage risk on such days, and clients are bound to lose more than what they have and cause damage to the brokers.
What can you do (as a client and what we do as Zerodha)?
If you think we are closer to an event, the last happened in 2008 - trade with well capitalized broker. We at Zerodha have over 400 crores of our own money in the business.
Trade with brokers who aren’t extremely aggressive on leverage. There are many brokers who offer any kind of leverage if you guarantee brokerage revenue. At Zerodha we have one deal for all our customers (conservative when compared to competition). Because of this, the extremely large and aggressive traders don’t use our platform (these are the ones who bring systemic risk on days things go bad).
Trade with brokers who are strict when it comes to risk management. The only way for a brokerage to run in long term taking so many clients risk is by being extremely strict and sticking to the margin policies set. At Zerodha all risk management is rule based (automated). We cut out all leverages on days when we expect volatility - knowing very well that some of our clients who don’t appreciate why we are doing it can move out to competition.
Hopefully this helps 