Swing Traders Pain for MTF (Margin Trading Facility) E-Margin

[Ravinder_Sharma]

A large section of traders run their trading business with the help of MTF.
There is no doubt that Zerodha is the best platform, best in everything, but I cannot trade my swing trading system on Zerodha. Because Zerodha does not provide MTF facility.
There are lakhs of traders who are stuck on platforms like AngelOne, ICICI, KOTAK in compulsion for MTF.
@nithin You have been saying since 2016 that we will bring MTF facility, it is in our list but it has been 7 years since you did not even give a brief answer on this.
You answer each question in brief and help…, thank you for that, please clear your stand on this so that we can find a solution instead of waiting.

[CT143]

I Want That Too.

[nithin]

@Ravinder_Sharma

@nithin You have been saying since 2016 that we will bring MTF facility, it is in our list but it has been 7 years since you did not even give a brief answer on this.
You answer each question in brief and help…, thank you for that, please clear your stand on this so that we can find a solution instead of waiting.

MTF has gotten delayed for various reasons. Until 2019 we were a partnership firm, and hence we couldn’t offer. We converted to a public limited firm in 2019. From 2020, there were large regulatory changes happening which led to us deprioritizing offering MTF. It is on our list of things to do now, we are waiting to pick on the project as soon as a couple of other regulatory changes are completed. Unfortunately can’t give you a definite deadline yet.

Also, maybe the reason we haven’t prioritized is that we fear that all customers of ours today don’t take leverage while investing and might start doing it if we launched this feature. Leverage is the biggest culprit for investors or traders not making money. Even though this will add revenue, this is maybe why we have taken so much time on this.

But that said, I also understand that we might lose business and the customer might just move away from us for this reason. So yeah, a conflicted place to be in. But we will take this up soon for sure.

[Chirag1]

Hope one fine day you don’t wake up and block derivatives trading on Z for the same reason

[VijayNair]

@Chirag1

Hope one fine day you don’t wake up and block derivatives trading on Z for the same reason

Maybe they will do the selfless act of increasing brokerage in the supreme interest of the customers

[viswaram]

MTF honestly go against zerodhas core principles.

1. They cannot charge brokerage for equity and MTF is for equity trades.
2. FnO is their source of revenue, if MTF comes in few traders will be nudged to choose EQ over FnO

how will they fix this conflict of interest?

[VijayNair]

@viswaram

how will they fix this conflict of interest?

By charging interest.

[nithin]

@VijayNair

By charging interest.

@viswaram

FnO is their source of revenue, if MTF comes in few traders will be nudged to choose EQ over FnO

You can make more money as a brokerage from MTF business than in FO. People who borrow money to buy more stocks can potentially hold it forever if they are in a loss and hence generate an income forever.

Most investors don’t beat the benchmark even when investing without borrowed money. It is almost impossible to beat it if there is a 15% to 18% interest cost on top of it.

Hence as I said, not suitable for most customers who today aren’t using leverage. Even if we launch it, it will be a hidden feature like how today we have LAS from NBFC that is very hard to discover.

[nithin]

@VijayNair

Maybe they will do the selfless act of increasing brokerage in the supreme interest of the customers

I might sound like a hypocrite saying this, but after the experience of the last 13 years of Zerodha, I am unsure if low brokerage helps traders overall. Low brokerage creates an illusion that you can somehow trade in and out quickly and generate profits, which isn’t true. Apart from brokerage, there is impact cost and statutory charges.

Apart from leverage, overtrading is another big reason people lose money in the markets. Low brokerage could, among many things, also be the reason for overtrading. We have had this idea internally; maybe we should give an option to customers to willingly select a higher brokerage so they think twice before entering and exiting a trade. Take the trade only if a customer believes it will move enough to cover the cost; otherwise, sit tight.

[VijayNair]

@nithin

maybe we should give an option to customers to willingly select a higher brokerage so they think twice before entering and exiting a trade.

You could try

But if your goal is to really deter overtrading, you would do better if you displayed “Day’s charges” on kite itself. Maybe in positions tab and mentioning approx charges prominently (including taxes) in the order window.

[nithin]

@VijayNair

You could try

But if your goal is to really deter overtrading, you would do better if you displayed “Day’s charges” on kite itself. Maybe in positions tab and mentioning approx charges prominently (including taxes) in the order window.

We will launch a virtual contract note feature on Kite in the next few days. It will show all charges on the go.

What is the virtual contract note, and how to view it?

[t7support]

@nithin

Low brokerage creates an illusion that you can somehow trade in and out quickly and generate profits, which isn’t true. Apart from brokerage, there is impact cost and statutory charges.

Illusion and ignorance are two different things. Anyone trading for sometime would typically figure out the other charges being levied on his account per trade.

@nithin

I might sound like a hypocrite saying this, but after the experience of the last 13 years of Zerodha, I am unsure if low brokerage helps traders overall.

Trading is just like doing a business. Lower the cost that much better for the business.

[nithin]

@t7support

Illusion and ignorance are two different things. Anyone trading for sometime would typically figure out the other charges being levied on his account per trade.

Hmm…that is a broad assumption. As Zerodha, we know what % of our customers are checking out our contract notes, P&L statements, and brokerage calculator. And this is a small percentage. Is there any other way for a customer to know the charges levied?

@t7support

Trading is just like doing a business. Lower the cost that much better for the business.

There is enough research now available to prove otherwise. Again what you and I feel could be very different from the truth. Usually, data mostly tells the truth.

Low brokerage leads to people overtrading

This is nice research paper that explores how the behavior of investor changes after trading commissions are removed. We show retail investors are highly responsive to changes in trading commission fees. Using a triple-difference research design around the removal of fees for retail investors on the international retail broker platform, eToro, we show investors responded by trading approximately 30% more frequently, in smaller order sizes, and increasing portfolio turnover. Removing fees also …

[t7support]

@nithin

Hmm…that is a broad assumption. As Zerodha, we know what % of our customers are checking out our contract notes, P&L statements, and brokerage calculator. And this is a small percentage. Is there any other way for a customer to know the charges levied?

Almost all traders I know personally check p&l statment and figure out that there are % based charges levied by exchange, SEBI and govt apart from brokerage. People come to the market to make money. So they check how much they have made or lost and in the process they are likely to figure out the charges.

Also there was a time when the other charges were not very visible apart from the contract note. But now a days charges are seen pretty upfront in order transaction estimator / brokerage calculator and pnl statements.

@nithin

There is enough research now available to prove otherwise. Again what you and I feel could be very different from the truth. Usually, data mostly tells the truth.

I will give a counter viewpoint based on data to the study you shared. There is a zero charge broking house in the Indian broking landscape. Zerodha charges Rs.20 brokerage, AOC, AMC and hefty charges on apis. But the zero house has around 1% active clients relative to your active client base.

Business / trading success depends on a number of moving parts. Cutting cost will help. But there are also other factors that lead to business / trading success.

[VijayNair]

@Low brokerage leads to people overtrading

Using a triple-difference research design around the removal of fees for retail investors on the international retail broker platform, eToro, we show investors responded by trading approximately 30% more frequently, in smaller order sizes, and increasing portfolio turnover.

@t7support

There is a zero charge broking house in the Indian broking landscape. Zerodha charges Rs.20 brokerage, AOC, AMC and hefty charges on apis. But the zero house has around 1% active clients relative to your active client base.

Above posts by @nithin and @t7support reveal important fact about data.
If you torture the data and seduce it with ‘slightest of bias’, it will seem to tell you what you want it to tell you

@t7support

Business / trading success depends on a number of moving parts. Cutting cost will help. But there are also other factors that lead to business / trading success.

This seems right

[nithin]

@VijayNair

Above posts by @nithin and @t7support reveals important fact about data.
If you torture the data and seduce it with ‘slightest of bias’, it will seem to tell you what you want it to tell you

The research report on low brokerage could lead to overtrading and can have biases. But on our platform, if only, say 25% of customers check P&L statements, Contract notes, or brokerage calculator in any form, there is no bias here, right? This is just a hard fact.

@t7support

But there are also other factors that lead to business / trading success.

No successful business has been built just based on low cost. Platform, credibility, ability to scale, time spent doing a business, luck, and so many other things have to come together.

[viswaram]

Also cutting down the brokerage affects the re-sellers & sub-brokers. Since zerodha has used word-of-mouth publicity, it will impact lot of intermediaries.

[TradeB2B]

@nithin please reduce your brokerage to 10 rupees atleast for high trader

[Vikas_Kumar1]

I saw a lot of platforms charging low interest rates which makes MTF a very sweet deal. Best I came across is AsthaTrade providing MTF at 3.99% up to 1 lakh and 9.99% beyond that. Even ICICI provides MTF at 9.49% at Rs 5000 subscription.

[t7support]

@nithin

The research report on low brokerage could lead to overtrading and can have biases. But on our platform, if only, say 25% of customers check P&L statements, Contract notes, or brokerage calculator in any form, there is no bias here, right? This is just a hard fact.

Unless am wrong 25% would roughly be the number of customers who actively trade in the market out of your total customer base. Hence they will check pnl and figure out.

@nithin

No successful business has been built just based on low cost. Platform, credibility, ability to scale, time spent doing a business, luck, and so many other things have to come together.

Yes lot of factors are in play for a business to succeed. But operating cost is also a factor. Lower the cost higher is the net return and better are the odds for survival.