InvestorQ : With the growth of Zero cost broking models like Zerodha and Upstox, what are the major risks you see in this business and what are the merits?
Dawn Cherian made post

With the growth of Zero cost broking models like Zerodha and Upstox, what are the major risks you see in this business and what are the merits?

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Mitali Bhutta answered.
1 year ago
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In the last few years it is the zero cost model driven by technology and zero research that has really taken the cream of the volumes in India. To that extent, one can say that zero cost brokerage has become an attractive stock broking model in India and has effectively challenged the traditional full service model by cutting costs.

In the zero cost broking model negligible brokerage charges are levied typically for cash market transactions while much higher brokerages are levied for futures and options. This is basically turning the traditional model on its head. The zero cost model is actual risk based pricing of the broking service.

Interestingly, while delivery does not entail costs, intraday and F&O is charged to compensate for the free delivery charges. Most full service brokers like Kotak and IIFL have moved substantially into the dual model of

The big risk is that not all discount brokers have sustainable business models and this can present a risk in future. Another risk is the lack of any research support. But there is one more important point. Most discount brokers make profits on the float of customers, not on fees or charges. That is subject to regulatory shifts. Also entry barriers are low.

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