anil, back until 2016, they provided pledging option for option selling alone and I used it. maybe now after karvy fiasco, they must have stopped. sorry for wrong info.
Really? Well doesn’t the risk go to the investment banks that is financing your leverage? You are mostly transferring your risk to the banks. As far as I know, banks give you finance for leverage and you people give them the access to your clients’ order books. That’s how it works in the US atleast, it wouldn’t be any different here I guess. Brokerages are one heck of a shady business…
Hmm… no. In India when a broker offers leverage, he has to fund it himself.
Can brokerages loan money to their clients?
For all practical purposes intraday leverage seems like ultra-small term loan
This is what SEBI has just disallowed now
thank you…will check the thread
I see… I mean that’s very bad… Have you tried reaching out to banks to fund your leverage? You know, maybe you could partner up with them. This partnership is very dominant in the US. I have some Hedge Fund & IB friends. They made it very clear how things work with brokerages there… They fund them for leverage and in return they get access to the complete back-end of the brokerages. God forbid! those poor retail traders.
They do not offer margin on pledge.
The main cons of IB are
-
Margin on Stock pledge not available. (if you are only a option writer / or depositing only money to your stock broker then it is not an issue at all)
-
Funds transferred for trading gets locked for 5 days. (again if you leave funds with your broker for a longer period then it is not an issue at all)
Reviews mentioning that million vs thousands, it actually is the opposite. They have a world wide RMS/OMS.
If these two cons are reviewed by IB, most of the indian brokerages have to shut shops or review their business models.
2000 for an api is way too high at zerodha. IB offers it for free!
System is totally different in India, it won’t work that way.
Also in India there are no dark pools as such, I mean all orders have to go to exchange and execute there itself, so no one buys order flow and brokers won’t make anything out of it in India.
Ok…so now i‘ve read the circular and the crux that i got is:-
- Margins as determined by sebi have to be collected UPFRONT and SOLELY from the investor/trader.
- No part of the margin requirement can be fulfilled by the broker. The reason for this change is to ensure that a broker does not use one client’s fund to finance other clients. Thus ensuring transparency and stability.
Correct me if i am wrong here.
Now as i’ve understood zerodha uses its own funds for leveraging. This is done by means of the fund it maintains with the exchange, out of which money(real not notional) is blocked when used for leveraging. Upper limit of which is 90% of zerodha’s corpus parked with the exchange.
Since zerodha can no longer provide leverage can u tell Whether there will be any need for you to maintain a large balance with exchange? If not can these untied funds be used in a different (yet legal) way to finance clients?
@nithin
No, there is no way going forward for brokers to fund customers for intraday trades.
For instance would it be possible to finance clients for a period of say one week, for nominal interest. Here the money is transferred from broker to client, and this money when used by the trader gets collected upfront from his account(and not partly from zerodha’s account as done earlier)…since this is not leveraging, and this is not using one client’s fund for others, would it be against the spirit of the circular?
@nithin
no, like I said, none of that is possible.
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Alright…
Are you sure about this?
Dark pools you’re referring to most of the times are prop traders at investment banks who are often called Market Makers. As per my knowledge, how they work is they execute orders on behalf of their clients. If a client wants to buy million shares of AAPL at let’s say $500 that’s around $500M, these prop traders take up some percentage of commissions for executing the orders it is around 5bps I guess, basically for doing nothing quite literally. These orders are then executed by automated algorithms. The idea is to buy shares at lower prices than $500 on an agreed time frame. 90% of the time these traders spend time just managing these algorithms to ensure they are working as expected. But if they manage to get shares at a lower price which most of the times they do you see the amount of money they make… If they manage to get shares at $499 they quite literally made $1M just in executing the order, unlimited profits. But if they go above it losses are unlimited. And these losses are recovered by trading and that is where they spend 10% of the time.
It is kinda like shorting but here you get commission instead of paying the client who you kinda burrowed from. No wonder why banks are one of the most dominant industries in the world. They somehow find ways to make money. Anyway, coming to the point, I am sure there are dark pools in India as well. I mean, if i tell an Investment Bank to buy on behalf of me what’s wrong in that?. They buy and then transfer the shares at a price point they agreed on i.e. $500. There is nothing so dark about these ‘Dark Pools’. They must be there. Maybe you guys can substitute some of your lost revenue from leverages by doing just this, but there is definitely some risk but it depends on the capabilities of your algos and traders if you’ve got them there.
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I thought hedge funds themselves go to banks for leverage, I mean banks do finance these funds as per their trading requirements.Correct
Of course they do, if you are a billion dollar hedge fund and you work on huge scale then you need someone to finance leverages at huge scale and huge banks can do that. But in the case of brokers they don’t really need huge leverages at that scale so big hedge funds can finance a brokers leverages as well. But most of the times it’s investment banks that do the financing though.
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Why should we stick with Zerodha… bcoz this thread exists 
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