Kotak says that companies like Zerodha are going to close and is it true that companies like Zerodha make pool account & keep our money in that?
We have been getting this right from when we started the business.
When we first started at Rs 20 per trade they said they will not be able to survive as they will not make profits. It is 5+ years now, we have not only survived but are among the most profitable retail brokerage firms in India.
They said they will not be able to help you with anything - Zconnect, Tradingqna, and Varsity are probably the most popular online initiatives in India today. We are sharing knowledge much more than all traditional brokers combined.
They said since we charge so less, we will not be able to build on technology. Our product suite, especially Kite, Q, Quant, and Pi are today probably the best trading/reporting tools in India.
They said we will struggle to add clients without advertising, we have close to 2lk of them all through word of mouth and spending Rs 0 on advertising.
I can keep going on (remember I have vested interest ). Coming back to your main question, the way exchange settles with the broker is exactly the same way, no matter if it is Zerodha, ICICI, Kotak or whoever else.
Every broker opens a bank account through the exchange called the client account. All broker client funds come into this and exchange credits/debits from this one pool. Exchange will not be able to ever directly reach out to a clients bank account, even if it is ICICI/Kotak etc who are banks.
So the question really to ask is, if a broker can close down. Yes, they can. But similar to how banks closed down in the US during the crash of 2008, banks can also close down in India. The important thing to note is that SEBI has done a wonderful job regulating Indian markets to ensure that retail investors are protected. Exchanges have setup investor protection fund which guarantees Rs 15lk per investor in case something goes wrong with the broker (remember no such guarantee for a bank account from RBI). The IPF is over Rs 1000 crores in size today and has never been used.
So yep, when a business can’t compete in terms of costs,technology, initiatives, support, transparency, they are bound to come up with a conspiracy theory. There is nothing that you need to be concerned about.
Cheers to Zerodha.
Hi, correction. Banks guarantee rs.1 lac per account and premium for this paid by bank themselves to DICGC.
don’t worry Zerodha is a good broker its just a rumor to diver the mind set of investors.
Great sir.wish you all the best.keep going. One submission from side.please add in kite cover order with limit facility. Hope my request will be considered soon
Kotaks saying is out of jealousy, from 2002, i tried ICICI Direct, Kotak, Geojit and some of my friends had accounts in Share khan , but none of them are not for Retail Traders and investors ,. It is impossible to make money trading through them, Hats off to Zerodha , i would like to suggest people , who ask this kind of question is that , first you study the Trading & investing cost if you trade by using their account , open an account in Zerodha, after all Market is a risky place , No profit without a risk
Great going NITHIN … keep the good work going… Fantastic Technology ZERODHA …
Nothing sir,we are proud and happy to trade with Zerodha.the platform is exactly the way i wanted.I came in with zero knowledge but Varsity helped me to a great extent.u have our support and wishes always.
@nithin I think its time Zerodha stops justifying itself and its model. Enough has been spoken about the same and we traders continue to enjoy benefits everyday. Kotak or whoever can come and say whatever they want.
The trader community in India has reposed its faith on Zerodha and we expect continuous improvisation to the product as you have been doing.
Congrats on Zerodha!
Friend of mine who’s from the US was greatly impressed and introduced me to Zerodha!
SEBI has 15lac per investor in a fund.
Just to be clear, the only risk is with the capital lying in the DP’s account, right?
Since the shares/MF etc are actually held by either NSDL/CDSL, and therefore, are completely insulated from the DP.
Is my understanding correct?
Yep, not the with DP but trading member.
Varsity has been a blessing and cut short my learning curve. It is the most comprehensive and realistic educational material for beginners. I recommend it to everyone who I meet.
Can you help me understand if for ANY broker where is the risk exactly?
- Risk on margin money/cheque paid to broker?
- Risk on shares/securities held in the Demat account?
I am not clear on this. Also if you can point me to place which would have details on this - that would also be cool. Thanks !
Risk on margin with broker is higher. If a brokerage gets into trouble and goes down, the money parked could be at risk. But the good news is that SEBI has asked exchanges to setup investor protection fund to cover any such eventuality. So if a broker goes down, upto 15lks per client can be recovered from this fund.
There is no real riks on shares/security held in demat, this is essentially sitting in your own account with either NSDL/CDSL. The only risk here is if an unscrupulous business/employee moves share from your demat through forgery. (This risk exists even with banks where you park money). When stocks move out of demat, depositories send SMS/email. If you are sharp, you can spot it in the act and stop this.
That said, these things hardly ever happen. If you stick with decent brokers who are not extremely aggressive on risk, this is not something you should be worried about.
I have a doubt.
In intraday trading the client uses only some percent(margin) to trade. If he incurs massive losses daily, he loses margin.
Here zerodha losses its funds right because they are providing the remaining margin.
So if all traders lose continuously then what will happen?
This risk is there with every financial institution. RBI has set a cash reserve ratio of 4%, so essentially with just Rs 4 as cash, a bank can lend for Rs 100. Imagine if the borrower defaulted.
Anyways, when it comes to brokers, SEBI has setup strict risk management rules. Minimum money to be collected as F&O margin, if it isn’t there in the account, heavy penalty. This ensures every client has minimum amount of money. If a client is getting funding to buy stocks, only 50% allowed legally through an NBFC (many brokers use a small loophole to fund through the broking entity itself and not the NBFC), and more.
So the real risk is not when trader loses daily. Because by end of the day, the broker forces the client out of a position as soon as the margin comes below what SEBI prescribes.
The risk is when markets suddenly move up or down, a black swan event of sorts (usually on days like election results etc). On this day a trader could lose a lot more money than he has. As Zerodha we are extremely conservative in terms of risk and extremely aggressive in terms of pricing/tech etc. We reduce our intraday leverages as soon as volatility picks or around events that could be volatile.
If a broker is not safe/smart, clients can lose more money than have, hurting the brokers books/business.
I started becoming profitable only after I opened an account with Zerodha. Other Bank brokerage accounts were bleeding me with charges,
I felt Nithin has done a wonderful job on Zerodha, and wish him more strength in the future. I keep asking my friends to open Zerodha accounts and must have referred at least 20 of them. And they are happy too with their experience.
I have seen many clients has issue related to unavailability of server while putting orders.
I want to know from Nitin that is Zerodha working on it to handle the events?
It happened in front of me 2 times in 1-2 month time period recently.
i am hoping for good answer to this problem.
Yes Shabee, we have had a two incidents in the last 2 months or so which affected many of our clients. We have found the root cause for one and have a fix in place. The second one was unfortunately an issue with exchange connectivity which we could have done nothing about. We are changing the entire architecture in the back end to ensure even if such events were to happen, it affects only a minimal number of clients and who can be quickly shifted to a backup.