The year of epiphany came in 2015 for Nithin Kamath, the founder of Zerodha, one of the largest discount brokerage firms. Kamath has come a long way from 2010. When his brand new company rode the tidal wave of the worst stock market conditions that India had seen in 2011. So much so that it was the worst decline even among other countries.

But surprise, surprise. The company’s low-brokerage model actually helped it turn a profit in its very first year. And today it not just survives to tell the tale but also stands head to head among traditional brokerages like ICICI Direct, HDFC Securities and Sharekhan.

Till the time Zerodha came about, people traded on traditional brokerage where they got advice and were charged a commission of 0.5% for trading on the brokerages’ platform.

Zerodha said it would offer no advisory services. It would simply be a platform that let people trade for a flat fee of Rs 20 instead. It was meant for traders who knew what they were doing. One had to open a trading and a demat account with them for Rs 400, transfer money to it and trade.

The logic was simple. The cost of executing a trade, be it one share or one million shares was the same. So why charge a commission? In doing so, it became the first Indian discount brokerage with a flat fee model.

Since then, Zerodha was seen as one that could do no wrong. All it ever got was good press for being low cost and transparent. It was steadily gaining share at the cost of the incumbents and traders were using Zerodha for trading in futures and options.

But by 2015, competitors were snapping at its heels with the same pricing. It had to shake up things.

So it invested in technology to make its software more nimble. It also went from charging Rs 20 per trade to charging nothing on the most commonly done type of trade on the exchange—the delivery trade.

This is the kind of trade where people buy stocks of companies, hold it, wait for stock price to rise, then sell it later to make a profit. Though 99% of the stock market participants did this, it accounts for only 1% of the value that is traded on the stock market.

Traditional brokerages charge as much as 1% for this. But  Zerodha decided to make it zero.

“We were starting to be seen as a platform for only intraday traders (who buy and sell the same day). But we wanted to become attractive for a larger number of investors too,” says Kamath.

The average retail trading volumes on NSE
Type of trade Trading volume What does it mean?

AUTHOR

Arundhati Ramanathan

Arundhati is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She writes the newsletter Ka-Ching! ever Monday. She lives in Bengaluru and has spent over 12 years reporting and writing on various subjects.

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