Trading on the stock market has become so simple and more accessible that people now a days perform trades on the stock exchange as a hobby. People can invest on the stock exchange with an amount as low as INR 300. Students are making trades and earning pocket money. All this was made possible by brokerage platforms, which allow traders to buy and sell stocks from the comfort of their mobile phones. But have you imagined how trading looked like before these revolutionary platforms came into mainstream?
For us youngsters, we probably had no idea about how it is all done before these platforms came up with their services. Ten to fifteen years back, you would have to approach a broker, specify the number of shares and at what price you want to trade in. the broker would approach the stock exchange and would make trades on your behalf. The charges of this brokers were huge, some brokers used to charge 25 to 30 percent of the money invested as a commission. With such huge commission, and less information on the stock market, not many people used to trade on the market. But there is one company which revolutionized trading on the Indian stock exchanges. Zerodha dethroned the securities market leader- ICICI Securities to become the largest securities brokerage in India. With over 6 million active userbase, Zerodha conducts around 3 million trades per day.
Today, I will be covering About Zerodha, its leadership, its beginnings, and the factors that made this company a successful venture.
The Kamath brothers
Nithin Kamath, the founder and CEO of Zerodha, started stock trading as early as at the age of 17. Nithin used to trade in stocks which are cheap, or as this stocks are rightfully called “Penny stocks”. He did made a fortune by trading in this types of stocks, but sadly, lost all the profits made due to the stock market crash which followed in the year 2001-02.
Nithin later took up a job at call centre at night while he was performing trades in the morning. Later, he joined Reliance Money as a sub-broker, and he made a lot of money by handling big client accounts. Nikhil Kamath, co-founder and CTO of Zerodha, followed in his brother’s footsteps.
Nikhil dropped out of school while he was in 10th standard, to pursue a career in chess! Nikhil followed the footsteps of his brother and started working in the call centre and started trading on the market. As Nikhil got more experienced in trading, he started managing the assets of his friends and colleagues. Later, he joined Way2Wealth as a sub-broker.
The Start
In 2005, a wealthy foreigner was impressed by the trading skills of Nithin as well as with his portfolio, and wanted him to manage his money, so he wrote out a check of INR 25 lakh to Nithin to manage.
Nithin left his job in the call centre, as he acquired more clients wanting him to manage their demat accounts. But, there was a problem. there was no single platform where Nithin could switch between different accounts seamlessly.
In search of a unified platform to trade on, Nithin joined the Reliance money as a sub broker. The company gave him the opportunity to execute all client’s trades on a single platform.
Nithin realised that the profits made by the clients after paying their brokers was not so impressive, he noticed that the prices charged by the brokers are “Too much” and the traders would benefit immensely if these prices can be slashed. He also recognized why youngsters are not on the market, because the commission rates are too high and at the same time, right educational sources to understand stock market were literally non existential.
As Nithin had worked with many brokerage firms, he recognized the challenges faced by traders. With many years of experience under his belt, Nithin wanted to revolutionize the process of stock trading in India. both the brothers quit their jobs and started building Zerodha. They know well that the journey that they are about to embark is going to be gruesome.
The Launch Of Zerodha
It took the founders a good amount of time to establish a market stand after the incorporation of their company. Zerodha, in its first year, opened 3,000 accounts. People in India generally question the authenticity of any product which is offered at way lower price than that of its competitors, let alone a financial product, where Indians are very cautious when it comes to their finances. To over come such challenges, the company spent efforts on building a community, where queries and other misconceptions can be clarified by fellow traders. To this day, Zerodha allocate any capital for the company’s marketing effort, in other words, Zerodha do not market itself!
Their platform created a community where not just queries and misconceptions of traders were sorted out, but information regarding the basics of trading were provided. To provide this information, the company launched a platform called varsity. The platform provided traders with information on the working of stock market and common and essential terminologies related to stock exchanges and the market.
The company made good use of latest technology to stand out in the market and that sure helped them out immensely. Its trading platform named Kite on web and mobile today account for more than 10% of all retail trading turnover in the country. Zerodha also went on to launch Coin, which is an online platform to buy mutual funds directly.
The Cutting Edge of Zerodha.
The initial goal of the founders was to provide a technology driven and low priced trading services. As mentioned before, the profits made by the investors after deducting the brokerage cost was not impressive, this is something that the founders wanted to tackle.
In addition to that, the technology that was used was too old and Nithin felt the need to introduce a smart platform that enables users to trade online comfortably.
Nithin believed that if more investments flow in to Indian companies rather than that of the foreign counterparts, India can Become an Economic super power in no time.
The company depended on word of mouth marketing instead of the traditional method of marketing. This led the firm to run operations at significantly low costs and was able to garner more clients. Interestingly, trading is provided free of cost at his stockbroking firm if the period of holding for shares is longer than a day. They make money by charging a flat fee of Rs. 20 for futures, options, and intraday trading.
While other competitors charge much more than this which is based on the percentage of a transaction traded. Its business model on which it works is ‘low margin – high volume’.
The True Beacon
True beacon is an asset management firm which caters to the High net worth individuals (HNIs). The company was started by Nikhil Kamath and Richard Pattel, the former vice chairman of Standard Chartered Private bank. The company caters its services to individuals with total assets worth over ₹10 crore (€1.14 million) and the minimum amount to invest in their company is ₹50 lakh (€57,153/-). The capital will be invested in diversified portfolios ranging across stocks, fixed income securities, and other structured products, with the aim of generating high returns. The company has an amount of ₹1500 crores ( € 171.5 million) in assets under management. The company aims to increase their AUM to ₹2250 crores (€257.3 million) by the end of 2023.
Zerodha Today
As of 2022, Zerodha has reported an almost 60% year-on-year jump in both its profits and revenue for 2021-22 at around Rs 1,800 Cr(€205.8 million) and Rs 4,300 Cr(€492 million). Currently, the Zerodha is valued at over 2 billion dollars (1.9 billion Euros). There are around 22 lakhs 78 thousand traders on Zerodha as of 2022.
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