Art of making money in trading the Zerodha way

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The miners may or may not make money, but those who sell them the picks get rich. This is certainly true of parts of the stock markets, especially short-term trading by individuals.  Nitin Kamath, the man who has set up Zerodha, India’s first and largest discount stock broker, is one of those who have gone over from being a gold collier to a seller of picks and shovels. He was trading on the markets since he was 17 years old. However, after receiving two big shocks on the markets, he decided to switch from digging to providing shovels to others.

A man loses big on the markets and decides to get out of trading and creates a business which will help others do the same. However, it ideally encompasses the experience of practically a good amount of individual traders on the Indian equity markets, the negative impact being specially amplified by the fact that their activity of choice is highly leveraged derivative trading. They make profits for short runs and then make large losses, all escalated by the leveraged nature of their trading.

There is a competition called ‘The 60-day challenge’ on the Zerodha website, which customers can participate in. All it takes to win this challenge is to not make a loss over 60 days. If participants come out profitable at the end of the 60 days, then they had broken the challenge. This appears to be an astonishingly low qualifying level for an activity whose only goal is supposed to be to earn money. SEBI is trying to limit imitative trading among individual traders.

SEBI is planning to increase the contract size in futures and options trading on the stock exchanges. For the last 15 years, the contract size has been Rs 2 lakh. SEBI now wants it increased to Rs 10 lakh. The contract size governs the minimum ticket size that a futures or options (F&O) trade has to be. By increasing the contract size, SEBI would like to ensure that, only richer traders would trade in F&O segments it is the traditional idea that it’s good if richer people lose money on the markets but the small investor must be kept away from risky activities. Brokers and stock exchanges will strongly oppose to what SEBI has proposed as it means lower revenue. Discount brokers like Zerodha charge Rs 20 per trade instead of the traditional percent brokerage.

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