In the recent years, we have seen new brokerage firms popping up like mushrooms in a rain forest. The brokerage industry as we know it is about to change. With 80 percent of the new discount brokerage firms having no unique selling point. They are competing each other on offering cheap brokerage fees.
All brokerage firms have been reducing their brokerage fees Year on Year. With brokers like Finvasia deciding to go brokerage free. The existing brokers will have to adopt to a free brokerage policy or loose out in the next 3 years.
This is Adam Smith’s “The invisible hand Theory” at work, making sure that eventually the end users will benefit.
This is good news and bad news for retail traders and investors in India
The good news is, soon many will follow Finvasia and decide to go brokerage free. Your current discount broker will be forced by market economics to stop charging you brokerage fees.
The not so pleasant fact, The cash strapped brokerages will not invest further in research and development. The research funding on Free trading terminals by existing brokerages will soon stop. So if you hoped to see new amazing features on your current trading platform in the years to come, this could be disappointing.
This will create a new opportunity in the market for off the shelf Third party Trading terminals aimed at retail daytrading.
You will get the opportunity to trade from world class trading platforms. This will not be free, but considering all the features you can enjoy, you will be ready to pay and trade from these productive platforms instead. Just like Tradingview has identified the gap in the charting platform, other international entrepreneurs will soon enter into the brokerage industry in India.
In future you could be having a trading account with any broker and still trade from any third party Trading Terminal connected to the exchange.
So how does this affect the discount Brokerage Firms ?
- The new entrants to the discount brokerage industry will find it difficult to even survive.
- The existing brokerage firms will start counting in on their income from demat transaction and amc charges. Eventually the demat would become free too, just like upstox free demat with no amc.
- The brokerage firms with no strong client base will loose interest, this will reflect on the poor customer service and outdated trading technology they continue to offer.
- Traders and Investors will sense this change on their broker’s attitude and shop around for better and stronger brokers. (We are currently in this phase, where the stronger ones are having an exponential client base growth in the past year. Existing traders transferring to stronger discount brokers).
- Existing and struggling brokerage firms at the bottom will be forced to close down or sold off to the brokerage firms higher in the food chain.
- The stronger discount brokers will introduce Premium trading platforms on the side for a fee aimed at day traders.
To summarize for a retail trader, if you think your broker’s future is questionable, it is time to start auditing your contract notes on a daily basis. When the going gets tough, there are more chances of your trading funds getting fiddled with unexplained charges.