I know there are regulations for providing financial advice or taking money from others to trade, or trade on other peoples behalf.
However, will it be illegal if I just provide hardware and software to individuals to help them trade by themselves. Also, provide small initial financial assistance so that they may trade without the fear of losing money.
Will some kind of license or regulatory permission be required to do the above thing. The financial assistance be given to the individual without requiring to pay back anything to me. The individual may keep profit if he makes it.
Basically I will be providing a computer and some financial assistance to individuals so that they can trade by themselves using their own account. I will not be providing any financial advice or take any money from them to trade, or trade on their behalf.
There are too many loose ends to your post. I have multiple questions that come to mind, few of which are:
When you talk of software, what is it that you’re referring to? Are you referring to building trading systems for people?
If yes, then are you also trying to automate trades for them?
Why would you provide financial assistance of any sort to random individuals? Would you charge them for this service? If yes, are you going to give them invoices for this service?
Much has to be explained before someone can give you an opinion on whether what you are doing is legal/illegal.
I am looking to start a trading lab. Just like a computer lab. Or in a sense you can say “Trading Cafe”. Where people can start the computer, open the browser, login to their account and start trading. Hardware is computer and software is the operating system and browser.
Trading software is the one given by their corresponding brokers or of their choice, whatsoever.
I am giving money to help them start trading without putting their own money at risk. I will be charging usage charges for the computer and other services. services mean like, seating space, tea, coffee, office boy etc.
Something like a co-working space but only for traders and for the purpose of learning to trade in the stock market. I am only responsible for providing the environment and facilities to do so.
If they succeed, they will trade more, which means more revenue for me in the form of lab usage charges. if they don’t succeed they will know they do not have the aptitude for the same and go home, while I give chance to more new people.
For beginners, they face problems like computer with right hardware, as low spec computer works slow. Anyways it costs money to own a good computer/laptop. The environment provided is just right for trading. Silent and well cooled by AC, office boy to provide tea, coffee or anything else. No disturbance from family or strangers. Opens at 7:30 AM and closes at 4:30 PM. Saturday, Sunday open for spending time on extra research.
You may also refer to this post of mine: Any traders from Patna, Same idea but kind of different workaround to the problem (to involve more people).
How much amount at maximum you are willing to give and do you think it will be feasible to you in long run ?
Firstly, let me clarify to you that I’m expressing my personal views here and not as a representative of Zerodha.
From what I understand, all you are offering is the necessary infrastructure for traders to come trade on their own. As long as it’s limited to just this, I don’t think you need to opt for any regulatory permissions.
Clarifying that you aren’t a sub-broker, earning commissions out of their trading activities.
If they are all independent traders, opening accounts with brokers of their choice and trading on their own, how do you reckon this will happen? Do you have any role to play here?
What if I am also earning from their trading activity (as commission from brokerage generated) ? And if they chose to do so completely with their own choice. i.e. join a particular brokerage house using my referral. Or what if they join without knowing I am using my referral to help them open their accounts.
Other than that, my only USP is the infrastructure, the environment, the opportunity to network with people from trading community and financial incentive to do so.
As many people would agree, it is difficult to work from home or from cyber cafe due to unnecessary attention and disturbance.
Financial assistance is a one time, very small initial amount, which I won’t disclose here and is available on “limited offer basis”. This is just to attract attention and shall be provided to new traders, only as long as I can.
To me that sounds like a failed idea from the start, that’s at least what I am thinking about it, that’s really true and correct and there is no choice at all about all that. I do hope it will make it better really no matter what. I do not really see it happening.
Firstly, you can’t earn commissions as an Authorized person for multiple brokers, so you’ll have to choose one.
As long as you’re able to commit to the fact that your services will only be providing the necessary infra, I don’t foresee any issues. But if it becomes a gambling den or a dabba trading site, you’re in for serious trouble. While I fail to understand why someone would provide financial assistance to random people, I still suggest you consult a lawyer and understand the all round implications of the business you plan to start. Good luck!
I am not an AP for any brokerage house. And, if I understand it right, SEBI has already discontinued or something the AP route. Now one has to be sub-broker with some financial targets, meaning financial requirements. And I don’t intend to invest anything deep.
I know about satta and dabba, why would I let that happen, especially in present scenario where IT, ED and SEBI are very active in busting these kind of activities. I am seriously not looking to get into legal trouble, that’s why seeking advice. This is a proposed business, so I would certainly learn about any and all kinds of legalities and possibilities before actually venturing into this.
As said, financial assistance is only to get people from paper trading to real trading. Maximum anyone would be able to buy is not more than 10 stocks of any company that too below CMP of 100 or less.
This is just to encourage people to get their hands dirty and learn to control their fear and greed while trading. This can be learned only by real practice and not through paper trading.
When I had opened an account with a particular brokerage house, a few years back, they had a classroom program for learning to trade in the market. After the end of all learning sessions, they provided assistance to cover losses while trading in the live market. Upto a certain level only, but they did provide this. This brokerage house is one of the top 5 in India. If it could, why I can’t.
Also, another brokerage house offered to give me 2 shares of a particular scrip without me paying any money for it. Infact, I was told that I could sell it or keep it as I wished. I kept it as I didn’t need the money and to see how it goes in the long run.
My offer is only to encourage learning and nothing else. In my approach, I don’t teach them anything, but let them learn by themselves, by learning from their mistakes. What is wrong in this?
I shall be doing promotions for my services. And to use my services, one has to have a trading and demat account. They can open their account with anyone they wish, but they will compulsorily need one to use my services.
So how much will it cost to join such a trading group where you provide the infrastructure? If you charge high, people would rather upgrade their personal PCs than pay monthly fees and transport costs to come from different parts of the city. If you charge too less, you may not be able to break even (electricity, rent, etc). I’m assuming there will be no automated trading, so what is the point of high end systems anyway?
A couple of people I know have formed a small trading group (4-5 people) where they all gather in a warehouse type of place one of them owns, monitor different stocks and trade the same scrip when one of them finds a good opportunity. This kind of setup is more viable IMO.
Just my thoughts.
I don’t have to pay rent, I own my place. For office boy I have my own household help who will double as office boy. I will be charging only Rs. 999 per seat. if just 5 people join, I will break even. I shall be targeting nearby areas only. There is a big college within 1 km, so I could get some students from there. This shall be more of word of mouth promotion so there is little advertising cost.
Based on my trading experience, my systems are perfect enough to do basic trading. For advanced trading, I shall provide the system as per need, at special rates.