On conspiracy theories about Zerodha

Thursday, August 29, was a tough day for us. The order management system (OMS) managed by our vendors generated more than 30 minutes of downtime by one abnormal order. We investigated this issue and published a pos t-report on the same night, including technical details. This report was shared with the exchange and SEBI.

The media report was amazing. We were in the social media trend for the wrong reasons. One television station panel discussion was instigated for viewers to tag and tweet us. Competitive companies jumped to this opportunity, as often, and advertised their own "no bugs" and "downtime 0 %" services.

It was a very stressful event for Zeroda. However, what I paid to is a number of ridiculous conspiracy theories about us, and most of them are transmitted from information sources that do not understand the structure of stock brokers and the strict regulation framework that manages it. It was a thing. Even the television panels mentioned above advised conspiracy theories, which was extremely irresponsible.

I decided to write this article to take up some of these conspiracy theories. The reaction will probably make the conspiracy theory more ridiculous. We hope that the conspiracy theory will be wiped out by being published so that everyone can read it.

“Zerodha is the only broker that faces technical glitches and downtime”

I have spent most of my life as a trader, so I can definitely understand that when trading is affected by technical issues, customers are upset. But now, as a broker or as a technology company, I know that there is no way to run a business with no downtime. From exchanges to securities companies, banks to e-commerce sites, technical problems and downtime occur in all businesses. Tech giants such as Google, Stripe, Cloud Flare, and Facebook have fallen worldwide in the last three months. The two famous banks in India have been downtime for the last two weeks. Unfortunately, the impact of downtime is doubled for stock brokers, especially brokers like us. < SPAN> Thursday, August 29, was a tough day for us. The order management system (OMS) managed by our vendors generated more than 30 minutes of downtime by one abnormal order. We investigated this issue and published a pos t-report on the same night, including technical details. This report was shared with the exchange and SEBI.

The media report was amazing. We were in the social media trend for the wrong reasons. One television station panel discussion was instigated for viewers to tag and tweet us. Competitive companies jumped to this opportunity, as often, and advertised their own "no bugs" and "downtime 0 %" services.

It was a very stressful event for Zeroda. However, what I paid to is a number of ridiculous conspiracy theories about us, and most of them are transmitted from information sources that do not understand the structure of stock brokers and the strict regulation framework that manages it. It was a thing. Even the television panels mentioned above advised conspiracy theories, which was extremely irresponsible.

I decided to write this article to take up some of these conspiracy theories. The reaction will probably make the conspiracy theory more ridiculous. We hope that the conspiracy theory will be wiped out by being published so that everyone can read it.

I have spent most of my life as a trader, so I can definitely understand that when trading is affected by technical issues, customers are upset. But now, as a broker or as a technology company, I know that there is no way to run a business with no downtime. From exchanges to securities companies, banks to e-commerce sites, technical problems and downtime occur in all businesses. Tech giants such as Google, Stripe, Cloud Flare, and Facebook have fallen worldwide in the last three months. The two famous banks in India have been downtime for the last two weeks. Unfortunately, the impact of downtime is doubled for stock brokers, especially brokers like us. Thursday, August 29, was a tough day for us. The order management system (OMS) managed by our vendors generated more than 30 minutes of downtime by one abnormal order. We investigated this issue and published a pos t-report on the same night, including technical details. This report was shared with the exchange and SEBI.

The media report was amazing. We were in the social media trend for the wrong reasons. One television station panel discussion was instigated for viewers to tag and tweet us. Competitive companies jumped to this opportunity, as often, and advertised their own "no bugs" and "downtime 0 %" services.

It was a very stressful event for Zeroda. However, what I paid to is a number of ridiculous conspiracy theories about us, and most of them are transmitted from information sources that do not understand the structure of stock brokers and the strict regulation framework that manages it. It was a thing. Even the television panels mentioned above advised conspiracy theories, which was extremely irresponsible.

I decided to write this article to take up some of these conspiracy theories. The reaction will probably make the conspiracy theory more ridiculous. We hope that the conspiracy theory will be wiped out by being published so that everyone can read it.

I have spent most of my life as a trader, so I can definitely understand that when trading is affected by technical issues, customers are upset. But now, as a broker or as a technology company, I know that there is no way to run a business with no downtime. From exchanges to securities companies, banks to e-commerce sites, technical problems and downtime occur in all businesses. Tech giants such as Google, Stripe, Cloud Flare, and Facebook have fallen worldwide in the last three months. The two famous banks in India have been downtime for the last two weeks. Unfortunately, the impact of downtime is doubled for stock brokers, especially brokers like us.

“If you’re not paying, you’re the product”

The last incident before this one happened six months ago, on February 27, 2019. Just look at Twitter and you will see that several other brokers have had multiple incidents in the past few months. Of course, we are not benchmarking against our competitors. We are orders of magnitude larger than them and are more active on social media. So, the attention we receive is much more.

To give an example, recently one of the top 5 brokers in India was down for over 2 hours, but there were less than 10 tweets about it. We were down for 30 minutes on Thursday, trended on the front page of Twitter, and news channels were flashing our name.

As always, we continue to innovate and improve our product every day and work hard to prevent technical issues. As we have said several times before, our low brokerage costs are unrelated to the size of our technology investments or the quality of our products.

Order Management System: Our OMS is leased from and fully managed by Refinitiv (formerly Thomson Reuters, now part of the London Stock Exchange). Refinitiv is one of the largest OMS vendors for exchanges in India, supporting brokers big and small. Our in-house products and tech stacks like Kite are layered on top of the OMS. Every broker has an OMS that connects with the exchanges, and apart from a handful of brokers who have their own legacy systems, all others rely on partner vendors like Refinitiv.

While Refinitiv continues to actively improve its system, a large proportion of the downtime it has experienced over the years is attributable to the OMS. The underlying infrastructure and backbone of the Indian securities industry is quite old, and this is a symptom. We have been focusing on research and development to build a larger, future-proof system.

When someone claims "0% downtime" or "no bugs", it is a lie. Bugs exist in any advanced technology. The recent global debacle triggered by Intel's processor vulnerability is a good example.

Zerodha "should upgrade their servers": This is very misinformation. Our technology stack is very sophisticated. It consists of dozens of servers across multiple data centers, and is built to scale to several times the current traffic volume. Every day at 9:15am, hundreds of people log into Kite on the same instance. Kite streams 30s of market ticks per second to thousands of traders who are online, and processes 30s of orders per day. The Console's portfolio and P& L breakdown data spans tens of billions of database rows. Kite serves billions of chart candles every day. All this is packaged in a well-designed and light user interface for our customers. We built this technology all in-house. In terms of retail trading activity and scale, we are probably one of the largest trading platforms in the world.

“The technical issues are deliberate and are for market manipulation”

Our low brokerage costs have nothing to do with the quality of our technology, products, or R& D. We don't have "servers to upgrade". What do people have to say to Google about the massive outage that happened a few months ago? This is echoed in various ways by people who do not understand our business model. The conspiracy is that since we are providing a free service, we must be mining customer data and selling it to third parties, especially equity information providers. Most of our clients are invested in equities and direct mutual funds and do not earn any revenue from it, but we charge Rs 20 (or 0. 01%, whichever is lower) per trade for F& O and intraday equity trading. 95% of the total trading volume on the exchange comes from intraday equity and F& O trading. We have India’s largest retail trading community of intraday equity and F& O traders.

“Brokers can make money when clients lose money, i.e., by broker counter trading”

By offering free equity investment, we are able to grow the Indian capital market ecosystem and expand our customer base. But as I always say, the bulk of our revenue comes from active traders who execute over 15, 000 revenue generating trades daily. Do the math and you will understand why we are a Rs 500+ topline business.

As a technology company, we develop the technology for our internal operations as well as for our users, which allows us to keep our operational costs extremely low. We have the highest gross margins and are probably the most profitable retail-only brokerage in India. Both within the industry and internationally, we are considered a Fintech company rather than a brokerage.

The world's largest VC and PE firms are eager to invest in us at billion dollar valuations. One major global bank has given us a multi-billion dollar valuation in a recent publication. But we have never raised external funding because we have always been profitable and have grown on the merits of our products. This is something that our competitors who spend huge amounts on online, print and TV advertising don't have. The quality of our products and the goodwill of our customers is why we are the largest broker in India today.

Going back to the conspiracy theory, why would anyone in their right mind do something as harmful as selling their own customer data to third parties, let alone spammers and tip-tellers, when such a profitable, highly rated and growing business continues to grow? We have been fighting tooth and nail to address the industry-wide issue of phone number leaks that is happening at various levels. In fact, we have worked closely with SEBI to draft a Cyber ​​Security Framework that lays down strict guidelines on privacy and protection of customer data.

As a broker, like any other broker, we monitor our clients’ total positions as part of our risk management. This is required by regulations. We also have to evaluate all transactions from our clients against dozens of complex rules and conditions prescribed by the PMLA (Prevention of Money Laundering Act) Act to monitor for illegal and fraudulent trading activities. We do all this internally within our systems and perimeters. No client data or transactions are ever sent out of our systems. All brokers are required to do this and those who do not are not in compliance.

In a recent post I did on Yes bank, I shared some macro-level statistics that we created as part of our risk checks, which sparked a lot of conspiracy theories. We do not profile or mine our clients’ or trading data, let alone sell it (which of course would violate a lot of regulations). We also do not have a marketing or “data science” department that uses financial data to target or sell anything. In fact, we do not do any user targeting at all. Look at the websites of exchanges and depositories and you will find a wealth of data and statistics on market behavior.

This must be the most absurd, stupidest, most ridiculous conspiracy theory. How a heavily regulated financial business (regulated and audited by three stock exchanges and SEBI) can "manipulate the market" by intentionally taking down its systems, causing pain to its customers, damaging its hard-earned goodwill and reputation, losing revenue, violating laws and regulations, and all of this by "counter-selling" is so absurd and ridiculous that I don't know what to say.

Stop-loss hunting

Here is something surprising. On the whole, active F& O and intraday equity traders lose more money in transaction costs (STT, stamp duty, and other fees) and impact costs (money lost on bid-ask spreads) than they do in the actual market. This would be the same for any brokerage.

If brokers continue to counter-buy on exchanges against their clients' trades, they will eventually incur huge losses just from impact costs. And this would be noticed by exchanges and regulators who have real-time monitoring systems as well as audits. Also, common sense would suggest that no smart broker would push their clients to lose money and drive them out of the market, especially one that doesn't advertise and relies on word-of-mouth referrals from clients to thrive.

Also, in India, every order placed by a client is entered into the exchange's system in real time and matched there. This is different from many other markets where orders may be matched and filled by intermediaries outside the exchange (or "dark pools").

The only place this kind of activity is possible is places like illegal CFD (contract for difference) and binary options trading platforms, which, since there is no exchange involved, essentially trade against every trade their clients make. There, the platform makes a profit when the client loses. Since there are no trade or impact costs, such platforms make a profit if all their clients lose money on an overall basis. Since such platforms are banned in most parts of the world, they are usually based in tax havens like Belize, Malta, etc., and use online ads to lure people into trading by offering extreme leverage. Every now and then there is a black swan type event where a group of traders make a lot of money quickly, much more than those who are losing, and these CFD/binary trading platforms go bankrupt. The last really big event was in 2015 when the Swiss Franc was unpegged and shot up 30% in one day.

Like most brokers in Prop Desk, we also have a sel f-account trading desk. If you do not believe you can make a profit from the market, you will not be able to build a broker business with such passion and belief. We are trading in most lo w-risk position delta neutral strategies and investment in stocks and bonds. What we are doing as a prop Desk does not affect customer transactions.

At the end of each transaction date, brokers are required to upload detailed reports on the funding of the self and customer. For the past nine years, our prop position has never exceeded the margin of sel f-funded. We are frequently audited from exchanges and SEBI, but have never been violated with our or customer funding or props.

“Zerodha benefits by restricting trading on OTM options”

Update: Since September 2019, we have stopped all active trading strategies at Zerodha's prophat to dispel the concerns of using customer's margin and poor proppage. Currently, we mainly do bonds treasure business.

This is one of the specialized terms, which often fly, but there is no substance. This special conspiracy theory was discussed on the TV panel mentioned above.

I've been involved in trading and trading with individual traders for 20 years. I personally meet with tens of thousands of traders, in the email, online community, and in a very active forum such as TradingQ & Amp; A, Z-Connect, and Varsity. It can be asserted that the biggest reason for a personal trader loses is that the trading strategy does not make a loss. Many traders say they are conscious of the stop loss, but only a few traders actually make a stop loss order. And most of these small traders change or change their orders when the price begins to approach the stop loss. In other words, in reality, a considerable majority does not actually set a reverse value at the time of transaction. So, if you don't have a stop, what can someone really "hunt"? < SPAN> Prop Desk Like most brokers, we also have a sel f-account trading desk. If you don't believe you can make a profit from the market, you won't be able to build a broker business with such passion and conviction. We are trading in most lo w-risk position delta neutral strategies and investment in stocks and bonds. What we do as a propkesk does not affect customer transactions.

At the end of each transaction date, brokers are required to upload detailed reports on the funding of the self and customer. For the past nine years, our prop position has never exceeded the margin of sel f-funded. We are frequently audited from exchanges and SEBI, but have never been violated with our or customer funding or props.

Update: Since September 2019, we have stopped all active trading strategies at Zerodha's prophat to dispel the concerns of using customer's margin and poor proppage. Currently, we mainly do bonds treasure business.

“Mock investors; encourage active trading”

This is one of the specialized terms, which often fly, but there is no substance. This special conspiracy theory was discussed on the TV panel mentioned above.

I've been involved in trading and trading with individual traders for 20 years. I personally meet with tens of thousands of traders, in the email, online community, and in a very active forum such as TradingQ & Amp; A, Z-Connect, and Varsity. It can be asserted that the biggest reason for a personal trader loses is that the trading strategy does not make a loss. Many traders say they are conscious of the stop loss, but only a few traders actually make a stop loss order. And most of these small traders change or change their orders when the price begins to approach the stop loss. In other words, in reality, a considerable majority does not actually set a reverse value at the time of transaction. So, if you don't have a stop, what can someone really "hunt"? Like most brokers in Prop Desk, we also have a sel f-account trading desk. If you do not believe you can make a profit from the market, you will not be able to build a broker business with such passion and belief. We are trading in most lo w-risk position delta neutral strategies and investment in stocks and bonds. What we are doing as a prop Desk does not affect customer transactions.

At the end of each transaction date, brokers are required to upload detailed reports on the funding of the self and customer. For the past nine years, our prop position has never exceeded the margin of sel f-funded. We are frequently audited from exchanges and SEBI, but have never been violated with our or customer funding or props.

Update: Since September 2019, we have stopped all active trading strategies at Zerodha's prophat to dispel the concerns of using customer's margin and poor proppage. Currently, we mainly do bonds of bond treasure business.

This is one of the specialized terms, which often fly, but there is no substance. This special conspiracy theory was discussed on the TV panel mentioned above.

Closing note

I've been involved in trading and trading with individual traders for 20 years. I personally meet with tens of thousands of traders, in the email, online community, and in a very active forum such as TradingQ & Amp; A, Z-Connect, and Varsity. It can be asserted that the biggest reason for a personal trader loses is that the trading strategy does not make a loss. Many traders say they are conscious of the stop loss, but only a few traders actually make a stop loss order. And most of these small traders change or change their orders when the price begins to approach the stop loss. In other words, in reality, a considerable majority does not actually set a reverse value at the time of transaction. So, if you don't have a stop, what can someone really "hunt"?

Second, more than 80 % of today's all transactions are contracts between Nifty and Banknifty, which are extremely fluid. Assuming Nifty is at 11010, he learns that there are many stop loss orders at 10990. What should I do? Somehow, do you lower the market by 20 points, meet those orders, and raise it again? Even if someone has a depth of the price to move the price until the stop, there are thousands of traders who have a variety of views, and one person cannot control the direction of the market. Will it be a trading strategy to make a profit?

The only place where it is useful to forcibly leave customers from the "Lossing Hunting" or the position is on the CFD / binary trading platform, where the platform is the opponent of all customer positions. Platforms can hit the stopped stops, or that the risk management system will boost prices to the point of automatically settling the position due to lack of margin. Most of these platforms are reasons for giving extreme 100-200 times leverage for trading.

This is not possible with a regulated exchange platform. Exchanges also have a warning if the buyers of entry trading and exit transactions and sellers are the same customer. This is immediately escalated, and the broker is required to explain. Such actions have severe penalties and regulations.

Tick ​​by Tick (TBT) Feed: Finally, the stock exchange can track any changes that are taking place in all single orders, transactions, and exchanges. We provide something called data feed. This data includes details of trading at the exchange level and on hold for all brokers. Therefore, if someone has a strategy like "Stopross Hunting" or trying to grasp retail orders, the best option will be to subscribe to the exchanges TBT data feed. This is very complicated and expensive, but anyone can use it and is provided by almost all India and world exchanges. < SPAN> Second, more than 80 % of today's transactions are a very highly fluid Nifty and Banknifty contract. Assuming Nifty is at 11010, he learns that there are many stop loss orders at 10990. What should I do? Somehow, do you lower the market by 20 points, meet those orders, and raise it again? Even if someone has a depth of the price to move the price until the stop, there are thousands of traders who have a variety of views, and one person cannot control the direction of the market. Will it be a trading strategy to make a profit?

The only place where it is useful to forcibly leave customers from the "Lossing Hunting" or the position is on the CFD / binary trading platform, where the platform is the opponent of all customer positions. Platforms can hit the stopped stops, or that the risk management system will boost prices to the point of automatically settling the position due to lack of margin. Most of these platforms are reasons for giving extreme 100-200 times leverage for trading.

This is not possible with a regulated exchange platform. Exchanges also have a warning if the buyers of entry trading and exit transactions and sellers are the same customer. This is immediately escalated, and the broker is required to explain. Such actions have severe penalties and regulations.

Tick ​​by Tick (TBT) Feed: Finally, the stock exchange can track any changes that are taking place in all single orders, transactions, and exchanges. We provide something called data feed. This data includes details of trading at the exchange level and on hold for all brokers. Therefore, if someone has a strategy like "Stopross Hunting" or trying to grasp retail orders, the best option will be to subscribe to the exchanges TBT data feed. This is very complicated and expensive, but anyone can use it and is provided by almost all India and world exchanges. Second, more than 80 % of today's all transactions are contracts between Nifty and Banknifty, which are extremely fluid. Assuming Nifty is at 11010, he learns that there are many stop loss orders at 10990. What should I do? Somehow, do you lower the market by 20 points, meet those orders, and raise it again? Even if someone has a depth of the price to move the price until the stop, there are thousands of traders who have a variety of views, and one person cannot control the direction of the market. Will it be a trading strategy to make a profit?