@nithin Yesterday and on friday due to volatility many US brokers are down, I always used to believe only Indian infra is bad as we noticed few times when volatility is high or for some other reason Indian brokers are down or face issues. I am not a tech person to understand in detail, so wondering if you can shed your thoughts on this. Also as a client how I can contain this risk, whom to be blamed ?? Will Robinhood customers get back losses?
Sources here.
They were down almost the entire day on Monday and for half the day on Tuesday. This blogpost seems to suggest that they may have found the issue and a possible fix.
First off, I can imagine the stress the team at Robinhood must be under. They have done a lot of good for the brokerage industry in the US, but almost everything gets forgotten during an issue like this with many people who may not even be their clients or their clients unaffected by the issue also trolling them. Hoping the issue they have pointed out is fixed for good. Coming back to your questions
India somehow lags behind in Tech?
We have been working with a few US brokerage firms to allow Indian’s to invest in US. I had written this blogpost where I compare broking in US vs India.
The tech required to power brokerage firms in India is a lot more complex than the US. In India, all orders are required to be placed on the exchange, which means we have to rely not just on our infra but the infra that connects us to the exchanges. Also, the compliance requirements in India are way higher for a brokerage firm than in the US.
Even with these constraints, when I compare the platform we have built at Zerodha to our US counterparts, I don’t see us lagging behind anywhere. If we had enough bandwidth, we would love to launch Zerodha in the US and compete with brokerage firms there. I think we have a good chance of doing well.
Btw like you have rightly pointed, the issue wasn’t just with Robinhood, it was with e-Trade, Ameritrade, Fidelity, etc. Robinhood just got all the bad press as they are much bigger in terms of clients. It is similar for us in India.
Can losses be covered?
Check these T&C from Robinhood
There is no way a brokerage firm can cover losses when there are tech issues. The company will go bankrupt. When there are tech issues many people make money as well. If the person who makes money doesn’t give back profits to the brokerage firm and the firm has to make up for the losses, there is no way the firm can survive.
What can you do?
Technology risk is something that every trader needs to factor in. It doesn’t matter which platform and in which part of the planet, tech platforms can have downtime. Not just trading, but everything from Apple to Amazon to Facebook to HDFC bank to NSE to Nasdaq to NYSE. As a trader, the only real way to cover for these risks is by being conservative when trading and trading with as little at a time as possible. Don’t over-leverage. Even though the chances are extremely small, you never know on which trade you might get stuck due to a tech issue -—losing all access to the internet, trading platform going down, exchanges going down, etc.
Another option perhaps is to have funded accounts with more than one broker and take counter position in case you are stuck with positions with one broker?
Yeah. Even if not funded, keep some spare cash and fund the trading account when required. But that won’t cover the risks of exchange being down or you losing all internet access when in a trade.
If exchange is down I think there won’t be any trades specially in India as OTC market is not developed here. So it would be like trading half for all participants I think.
Exchange Colocation could be working while connectivity for retail brokers via leased lines might be down. So potentially trades could be happening, but you not being able to trade. Connectivity to a bunch of brokers (including your primary and secondary broker) could be down, but not for all.
Every business has operational risks. How can trading/investing be left out? A more “Traditional” business such as a factory or a services business like banking/IT has similar risks. The problem is traders/investors don’t look at their activity like a business. Yeah sure, if you are investing only to beat inflation, then fine. But if you are leveraging heavily like a traditional business will typically do and then you are not accepting the related risks which come with it, then there is something wrong in the approach of traders. IMHO.
