Largest unauthorized trade


#1

I’ve got this message on my whatsapp regards a huge unauthorized trade done by Zerodha. I hope this is not true…@nithin may want to clarify.

Zerodha squares-off largest (78000 units of TATAMOTORS) unauthorized trade within 15 minutes of trade day while client got T+1 days. This caused the client a total loss of 84 Lakhs within a single transaction. The entire fault is due to Zerodha’s liquidation.


WHATSAPP circulation message
Does Zerodha refute this article?
Does Zerodha refute this article?
#3

Firstly it can’t be 84lks for 78000 shares of Tata motors in 1 day. For that to happen stock must have moved Rs 100 in 1 day (Tata motors at around Rs 300). The Maximum it has moved is around 8 to 9 %. So the maximum loss in a single day would be around Rs 25lks. The 84lks is definitely an exaggeration.

If a client doesn’t have enough margin to hold a futures position, we square it off, this is consistent with our margin policy. Exchanges charge a penalty if F&O positions are held without enough margins. Some clients try to come back and get lucky if stock goes against and then comes back in their favor. Our risk management can’t wait for a stock to recover (which may or not may not happen) when market goes against a client and he doesn’t have sufficient funds.

Our margin policy:


WHATSAPP circulation message
What does Zerodha have to say about this arbitration order and article?
#5

@nithin if this massege is a kind of fake news and tarnishes zerodha’s image, will you take any legal action against it, to establish a trust among your users?


#6

Thanks for clarifying Nithin. This is getting circulated in many WA threads & used by competitors i guess to spoil Zerodha image. But, i was wondering why you kept deleting my posts as thats unfair & may lead to serious concerns from user community as this blog is supposed to be quite open/fair.


#7

That message is one of the scam messages amongst the millions other bullshit flying everywhere in whatsapp or other social media…

Why would you want @nithin to clarify some nonsense ??

Use your brain and learn to discriminate between genuine and fake news…


#8

Does this apply to Equity margins?
Specially the following sentence?


#9

@ManishAstral did anyone ask you for expert comments? pls keep your comments to yourself…first try to be civil


#10

You are the one who is posting some scam regarding a same question which have been already asked a hundred times in the forum… Stop polluting the forum with such scam questions…


#11

Pls stop writing without knowing anything…this incidence is not a scam & sent out yesterday. There’s also a complaint registered in NSE. As investors we have all rights to ask the broker. Zerodha is ofcourse good but we should always clarify. In recent times we have seen serious issues with some brokers.


#12

@ManishAstral, @CoolBird

Nithin has already clarified this. So why are you two fighting?


#13

My bad… Its just that i see the same scams being thrown everywhere and its pissing me off…


#14

When you buy stocks with us, you pay entire money upfront. So there is no risk that we carry on those. They will never ever be squared off. Risk management comes in when the client brings in risk on the table - essentially futures and options and intraday equity where a person is trading with a leverage of upto 30 times.

If a client has bought a stock at 100 with 30 times leverage, if the stock move 3.3 % against him, the client is out of the money and will start making losses more than account balance. The risk management job is to ensure that doesn’t happen. To close the positions much before client can lose more than what they have. If we don’t do it, it is a systemic risk for the rest of our clients.


#15

@nithin How is it a systemic risk for rest of us? Can you please explain?


#16

If position is not closed when one is short of money and in case he lost more money than what he has even then broker is entitled to cover up for that loss. Imagine on any black swan event day when markets(indices) moved up or down by for ex 5%, many would end up making losses, if our risk management team is not quick enough to close their positions before their losses are more their capital then broker has to cover up for those, so broker can go bankrupt in case losses are beyond his capacity to cover, these losses are covered from other clients cash component who even don’t hold any position, in this way bad risk management (setting up leverages / timely square offs etc) can take entire broker down along with all his clients.


#17

Thanks for your reply.
So, would this look like a typical bankruptcy case when all the assets are liquidated and the liablities are settled? But isn’t the clients money also a liability for a broker that has to be paid by him. And what will happen to the clients’ positions in equity as well as derivatives? Would they also be liquidated without any pay to them?


#18

We can’t predict what can happen next movement in markets so, brokers will have a policy in place. So they will act according to that policy, case by case is not differentiated.

But if broker is bankrupted what he can do. Investor protection fund is there to protect investors up to 15 lakhs in case of these systemic /fraud events.

Nothing should happen to equity if they are in Demat under your name.


#19

Understood a bit :sunglasses: . Thanks
And what about derivatives position?


#20

Using other clients cash to payoff liabilities incase of bad risk management is scary indeed… Would pledged securities of other clients also be at risk in such a scenario!? @siva @nithin


#21

Imagine IF there is NO BROKER and trader directly connected to NSE no middleman only CLEARING MEMBER require.
Actually what broker do can be handle by NSE . (I don’t know deeper but hope)

:slight_smile:


#22

This is the norm across the world. That is the reason why risk management plays vital role.