Zerodha and US stocks

General
41

I noticed that the Motilal Oswal offering also uses Stockal as the platform provider

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Stockal is also being used as the platform provider by the HDFC offering

As per an Livemint article, Stockal has been able to move the full LRS process online (including submission of A2 form) for ICICI bank holders (up to an amount of 25,000$)

They are quite open about their charges as well (refer to https://stockal.freshdesk.com/support/solutions/articles/43000549931) but one thing that is not mentioned anywhere, is their inward remittance charge for adding funds into the trading account. While checking their webinar (for their HDFC offering), I noticed a slide which mentioned it at 35$ per transaction (plus LRS charges extra). Given that this video was posted back in November 2019, I am not aware if they still continue to charge these fees for inward remittance or not (or if these same rates apply for the Motilal Oswal offering)

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LRS charges are not openly shared by most banks but HDFC does list charges for normal foreign remittance here (FEES & CHARGES remiitance, 500Rs + GST for under 500$ and 1000Rs + GST for over 500$). But as RBI classifies foreign investment as a capital account transaction which requires extra paperwork (A2 Form + LRS declaration), LRS charges levied by the banks for such transactions might be higher. On top of this, there is currency markup (around 1.5-2Rs extra per USD, Forex rate example)

So if we take a sample scenario, where I want to add 499$ to my foreign trading account using the above offerings. Let’s suppose currently 1USD is 75INR. So instead of 37425 (75 x 499), I will instead have to give 38173.5 (76.5 x 499, adding 1.5Rs currency markup, so the currency rate is 76.5). The currency markup costs us 748.5Rs. Now, on top of this there LRS charges that the bank will charge on top of this (for simplicity, let’s assume the LRS charges are similar to the normal remittance charges that were mentioned above). This would come out to be around 590Rs (500Rs + 18% GST). Now the 499$ gets credited into the trading account. On this, 35$ will get deducted for the inward remittance charges mentioned above. Leaving me with around 464$. Now, on top of this, if I am not subscribed to any of their yearly plans, then it will cost me around 2.99$ per trade to buy any stock/ETF (even if I subscribe to their highest plan, I will still have to pay 0.01$ per share I buy). All in all, even before starting any trading, we will have already lost nearly 10% of our capital in the form of charges, currency markup, etc.

As the amount of money that needs to be transferred increases, these charges pinch less but those who have higher capital already have access to ways to invest outside India. I think Zerodha is trying to make it easier/cheaper for everyone (irrespective of how much money they have) to invest outside India.

I don’t think Zerodha will face any problems in getting approvals but I think they are trying to solve the problem with reducing all these extra currency conversions and remittance charges. Hopefully, they are able to successfully do that

5 Likes
42

@Prayag I Dont think so if zerodha will reduce the transaction charge , any way transferring money to usa with 1 lakhs above its make sense , not for 100 or 200 $ its will give some loss - its not make any sense

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@linq123 idirect global is already operational. Even hdfc securities

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@nithin @siva hai i have one dout , if you clear my dout through this thread , for me and other reader also its very helpful i believe

In india our shares are in demat account , even brokers went bust our asset are safe with depositories , this is in india

in usa how its depository working , even when we are investing from india how we can trust the usa brokers , for example TASTY WORKS is charging for investment is 0 , when i am buying shares with tasty works where my shares will be credited , how safe is my stock with usa broker , i really need to know the function of usa market before invest , please reply us , better if i can get a answer from @nithin @siva

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I had shared this sometime back, it has your answer

#### Securities Lending

*The structure of our depository system, like our payments system, is a newer and advanced system as compared to the US. This is mainly because India didn’t have a legacy when we went online in the 1990s. We have depositories like NSDL and CDSL where we hold Demat accounts that remain unaffected even if a brokerage firm goes into trouble. In the US all securities are essentially held in book or street name with the respective brokers, what they call a “books and records system”. This means the securities are all held by brokers. This also gives an opportunity for the brokerage firm in the US to be able to lend these securities to people looking to short stocks or borrow for various trading strategies and earn an additional source of income (Unlike India, borrowing stocks to short is extremely popular in the US). The earning potential for these stocks held by the broker is typically based on the number of people wanting to short the stock. For example, early this year when Marijuana stocks were moving wildly, there were periods of time where one could earn as much as 100% or more annualized returns just by lending these stocks. Regulations in the US does mandate the brokerages to share some of the lending fees with the person who owns the stock, but the entire thing is quite opaque to the customer. Most never get to know how much was earned. *

*In India, brokers can’t lend securities as they sit in the clients’ Demat accounts with the depositories. Also, with the new set of regulations that came out on the 1st of Oct 2019, even securities bought by a customer that are unpaid for, cannot be pledged. *

India does have an SLB (Stock Lending and Borrowing) platform where clients can participate directly, and know the exact lending fees being earned. This platform sees very little activity today, but may grow over time.

4 Likes
46

We as Zerodha have put in immense amounts of effort in building solid educational initiatives and tools that help clients take better trading decision. I don’t think this is enough. There is a need for a large professional advisory ecosystem like in the US. Advisors who have spent their entire professional lives learning the markets, who have much better odds of helping their clients survive volatility. This, according to me, has been one of the main reasons for the growth of capital markets in the US. Professional advisors who end up turning their investors into professionals. While we might be ahead of the US in terms of technology in the capital markets, but we are decades behind them when it comes to retail customers’ professionalism and understanding of capital markets.

After going through this paragraph , i would like to say , i have gone through some of the " Thinkorswim" Traders training program through Webinars, i think all most all the USA brokerage firms arrange training/Advisory programs once a client joins them , So in India this will be a very helpful thing if all the Stock brokers do the same thing . Since many retails traders blaming others for their mistake , instead of putting blame on them so Indian Regulators making other responsible Retail traders life miserable!! I think SEBI should arrange training programs for New stock market entrants , instead of making crazy rules!!

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@siva @Nakul any plan to bring USA investing in Zerodha platform , are you working on this or not , if yes when we can expect , since long time is pending

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We already working on it, many take few more months.

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@Prayag I checked with the bank and they told me that the $35 inward remittance charge is when you transfer your funds back to India from abroad. It is not deducted during the outward remittance. Also this $35 is not charged per stock. Let’s say you sell some shares of Apple and Microsoft and you want to remit the profit to your Indian bank account, then this $35 is charged on the inward remittance on the whole amount that is being transferred, it is not $35 for Apple and $35 for Microsoft separately. Also I believe Vested Finance does not charge this $35. They maybe cheaper compared to Stockal. Also hopefully if the companies you invest in are good ones and have the prospect of going bullish in the long run and you hold it for a good amount of time the capital gains and the USDINR conversion rate will offset the charges that were borne during the initial outward remittance.

1 Like
50

Regarding the inward remittance charges, I had reached out to Stockal about this on Twitter. They clarified that they don’t have any extra charges for inward remittance (only bank-specific charges for LRS apply). Likely the video that I referenced for my post is old (it is from November 2019) and hence I reached a wrong conclusion as things have changed since then. Or might be when they mentioned inwards remittance in the slide in the video, they might have actually meant Outgoing International Wire Transfer charge that is already mentioned in their charges page and I might have misunderstood them from the start.

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When zerodha start American stock on his platform then that stock dividend directly deposit on our bank or we can keep on there so we can buy more stock there without pay any remittance charges, hope zerodha team tell us more about it, thanks

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April '19 - Jan '21

How long we do have to wait ?

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53

What will be the fees for investing in U.S stocks? Is it possible to move stocks from vested.co.in to zerodha directly?

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54

We will inform once we launched.

Don’t think it is possible as there is no concept of demat.

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Hi @siva

Not sure what kind of issues the Zerodha team is facing regarding providing Direct US stock investment, but check out https://www.aeldra.com/ and see if, what they are doing, solves your problem.

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Any updates in this regard?

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@siva any update on this, USA investment is possible in a month , i try to invsest there , if i can wait for a month

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58

@nithin Is there any update on this topic? Is there any plan to include this topic in VARSITY?

2 Likes
59

There are some regulatory issues around this and hence the project is on a backburner

https://twitter.com/Nithin0dha/status/1451808524254728193

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I understand. But at the same time, how are other brokers able to provide this ?

The regulations apply for all brokers, but how do they do this ? Does it mean that they are breaking these regulations ? @nithin