I recently got very interested in copytrading for the stock market and I wanted to launch a platform for the same.
When I did my research, I found that you had a platform similar to this but it did not work out. I was wondering why that was the case. And let’s be really honest - There are hardly any ideas you get that don’t work.
I feel given the current dynamics of the stock market and digital reach, a copytrading platform would work wonders in the current environment. I have thought about a lot of possibilities in detail and would love to discuss the same with you. Lastly, since this is a domain where you have thorough expertise, if you want to collaborate in any way, that would be brilliant. Hoping to hear back from you soon.
Copytrading is quite popular in CFD (Contract for difference) markets mainly because the regulations are quite lax. Here are are a bunch of reasons why it doesn’t make sense to run a copytrading platform in India
No automated trading allowed for retail.
The eye candy of a copy trade platform is that you allocate funds to some people and then trades are executed automatically in your account when the person you are following executes a trade. Such automated trading is not allowed for retail investors in India by regulators, and rightly so as the risks are quite high.
With Opentrade there was no auto trading, only a notification sent when the person following executed a trade. But this user experience was inferior to trades being executed automatically, turning the copy trading platform into like another one of those hundreds of advisory businesses.
Registered investment advisors
If people pay a fees to get an advise, it requires the person earning to have a registered investment advisory (RIA) or Research analyst (RA) registration with SEBI. Copytrading falls in a grey area, since people who are being followed need to earn something from the followers, they technically would probably need to be RIA or RA. If everyone needs an RIA license, which is quite tough to get, you will never be able have enough people sharing their trades for others to follow.
Front running
There are other issues of this platform, like front running. What if the guy with a lot of followers is buying when on this copytrade platform, while selling somewhere else (which is the main trade)? It is very tough to cover for those edge cases.
People chasing winning traders
Even the best traders have draw downs or losing streaks. One of the issues with a platform like this is that people will jump into following a trader post a large winning streak, when the odds of having a drawdown are much higher. The experience we had with opentrade was that people followed too late and didn’t have the patience to stick through the drawdown.
These are some of the reasons why I think Copytrade platform won’t work in India, btw none of the international ones also have been able to scale up (etoro, zulu, etc have done okay, but nothing to write home about).
Coming back to the point on if this platform can be legally allowed in India or not, the good news is that SEBI has announced a regulatory sandbox. You could now go and ask SEBI if such a platform can be legally allowed or not. Check this
Didn’t get your question. But let me guess and answer. Brokers can’t offer algorithms that trade automatically and create buy or sell trades. This as you would guess is because brokers can missell strategies claiming to make money and/or can cause large losses. Brokers can’t take liability. There isn’t no rule that disallows a customer from automating on their own, hence programming skills are important.