Trading with other people’s money

[nithin]

@sai_charan

So if I have a friend and both of us like to trade and also invest together, can we open a partnership company for the sole purpose of trading and investment?

Yep, you potentially can. Do consult your CA.

[nithin]

@ripusingla

@nithin @Matti Thanks for the article. really informative. I was wondering what are your views on software products like tradetron and streak.ai
where do they fit in the regulatory environment. On Tradetron, essentially a user is charged a profit sharing fee by the strategy creator and the trades are placed in user’s account. Also since tradetron is charging a percentage of revenue from strategy creator apart from fixed monthly fee to user, tradetron is also getting a profit share in a way (not directly though) for automation services. Thanks

Streak gives you a utility to build a strategy without knowing programming. So there is no issue with it. Also all trades are manual, just the signals are automated. No issue with that at all.

Platforms which have completely automated trading especially while collecting fees and also without any RIA/RA license is an issue.

[Mantavya_Gupta]

@nithin sir I saw Mr. Abid’s post on LinkedIn that employees in sensibull cannot trade in F & O What’s the reason for it and what exactly is this regulation

@siva @ShubhS9

[nithin]

@Mantavya_Gupta

@nithin sir I saw Mr. Abid’s post on LinkedIn that employees in sensibull cannot trade in F & O What’s the reason for it and what exactly is this regulation

@siva @ShubhS9

Sensibull is an Registered analyst (RA) with SEBI. So as someone who advises others, maybe they have taken a decision that the internal team can’t trade. Btw, even at Zerodha, the team is allowed only to invest in stocks, no F&O trading or intraday stock trading is allowed.

[aseem12321]

@nithin Thanks for this post ! Have a few questions regarding the symantics: “In the case of a Private Limited or Public Limited company, if more than 50% of revenue comes from financial income (trading), then the company is required to get registered as an NBFC”

Here, what is the definition of “50% of REVENUE”.

• In case of trading FNO, is it “Turnover” or “Net Realized Profit”
• In case of business, is it “Sales revenue of goods” or “Sales - Costs of good sold (also known as gross profit)” or “Sales - Costs of goods sold - Expenses (also knows as net profit)”

Once the definition is clear, we would be able to understand whether we fall under the 50-50 rule.

Regards
Aseem

[nithin]

@aseem12321

Here, what is the definition of “50% of REVENUE”.

• In case of trading FNO, is it “Turnover” or “Net Realized Profit”
• In case of business, is it “Sales revenue of goods” or “Sales - Costs of good sold (also known as gross profit)” or “Sales - Costs of goods sold - Expenses (also knows as net profit)”

Once the definition is clear, we would be able to understand whether we fall under the 50-50 rule.

Revenue = profits and not turnover when trading and in this context. So if your company has say Revenue of Rs 1crore and if more than 50lks or 50% come from trading profits and/or from interest income, that is financial income and will need NBFC license.

[Mantavya_Gupta]

Ok sir But many brokerages do prop trade right in F&O?

[nithin]

Yeah, brokerages can do prop trading. But usually, most brokerage firms wouldn’t let their employees trade actively.

[rahulsingh]

@nithin I have asked this earlier and you replied that no client have ever make 100 crore+ from active trading ,does that change ?

[nithin]

At Zerodha we don’t have really large customers. So no one has ever made Rs 100 crore+.

[rewaant]

Thanks @nithin for taking the time to respond and sharing your thoughts. I’m gonna consult with the advisors and proceed with this in consideration.

[Ravi18]

@nithin
Sir, I admire your humility and down to earth ways. It is amazing that despite being CEO of Indian’s largest brokerage house and a self made billionaire, you find time to respond to general queries and guide people, which you are not obliged to but you do it anyway.
Just reading your posts on various forums and reading your answers is a great learning experience. Thank you.

[Prakhar_Agrawal]

@nithin I guess one way is to become an AP ,take dealers terminal, get confirmation by client and execute trades. And you can charge profit sharing too by invoicing client as consultancy services. There are many firms operating in this model and advertising openly too. It seems it’s the most compliant way. Also I think you guys also managed money in the same way.

[Rishav_Ghosh]

Why India vix is trading in a huge range and why us vix is trading in a narrow range and why our bank and nifty 50 premiums are high on Friday mon tues and Wednesdays before coronavirus premiums used to be low

[nithin]

@Prakhar_Agrawal

I guess one way is to become an AP ,take dealers terminal, get confirmation by client and execute trades. And you can charge profit sharing too by invoicing client as consultancy services. There are many firms operating in this model and advertising openly too. It seems it’s the most compliant way. Also I think you guys also managed money in the same way.

No, today you can’t do this. It was maybe possible 15 years back. If you get a dealer terminal, you can only take orders of what customers want to execute. If you decided to advice, you will have to become an RIA. As an RIA you can charge a fixed fees or % of AUM, profit sharing is not allowed. The ones who are openly advertising are working in the grey area.

[Prakhar_Agrawal]

Thanks

@nithin

you get a dealer terminal, you can only take orders of what customers want to execute. If you decided to advice, you will have to become an RIA.

Btw Don’t you think it comes to incidental to business activities of AP. Similarly like you being a broker can advise clients , CA could advise wit regards to taxes etc and charge charges for the same.

[siva]

@Prakhar_Agrawal

Btw Don’t you think it comes to incidental to business activities of AP

No, this has been misused by many APs,brokers earlier. Employees are given targets to generate more brokerage and due to that mis selling happens, lot of conflict of interest arises for APs. Also most of the complaints pending on exchanges are because of this reason and this is one of the things which helped Zerodha to have a positive brand value.

[nithin]

@Prakhar_Agrawal

Btw Don’t you think it comes to incidental to business activities of AP. Similarly like you being a broker can advise clients , CA could advise wit regards to taxes etc and charge charges for the same.

You could do this when there was the concept of sub-brokers, who had separate registration with SEBI. All the illegal PMS that lost money and the resulting complaints meant that SEBI killed the concept of Sub-broker and Authorized person was introduced. Today an AP on their own isn’t even registered with SEBI.

Btw even brokers are allowed to charge only brokerage fees and can’t have any profit-sharing type of arrangement. It is just a matter of time before SEBI disallows brokers to advise without an RIA license.

[AB1]

Just wanted to compliment @nithin (without asking him any question )
I have always wondered from where this guy gets all this humility… other people who are not even 10% as successful as him , tend to brag like hell on all social media platforms…

Hats off @nithin , you are an inspiration. You single handedly did wonders for the Capital Markets in India (atleast as far as retail participation is concerned)

[sorabh_dhiman]

100% agreed,he is carrying the attitude as like as Mr tata.