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How this company became the largest broker in India

Updated : January 28, 2019 10:52 AM IST

Nithin Kamath founded Zerodha in 2010. Since then, Zerodha’s disruptive pricing models and in-house technology has changed the landscape of the broking industry in India.

Part of the brand’s name is derived from the Sanskrit word ‘rodha’, meaning barrier together forming the phrase ‘zero barrier’ as Kamath wanted to position the brand as a facilitator of zero-barrier trading for his clients.

He started his career at 17 and traded stocks on behalf of wealthy clients. He did this for a decade before his brother Nikhil joined him in the business. In 2009, an election year in India, they had squared off all their positions ahead of the poll results realising they lost out an opportunity to make money. This is when they decided that Nikhil, who turned out to have a real penchant for trading would continue to trade, while Nithin built a brokerage firm. This became Zerodha’s origin story.

In an interview with CNBC-TV18’s Mangalam Maloo, Nithin Kamath spoke about Zerodha’s inception. Edited excerpts:

Mangalam: You started out in the capital markets. How was that journey?

Nithin: I used to live in an area that if full of Marwaris, so I got introduced to capital markets when I was 17. I guess it was the lure of quick money that gets people in that got me in as well. It’s been a rollercoaster since then.

Mangalam: You were also a sub-broker for Reliance Money between 2006 and 2009; a time when the markets were doing fairly well. However, when you decided to shut shop and start Zerodha by 2009, it was the worst period for markets. So, what made you take that decision?

Nithin: In hindsight, it was probably, the best decision I have taken. Even though it was the worst time for broking as an industry, if I had squared off my position just before markets had closed in 2009 when election results came, it would have hurt badly. It was the best thing to happen because I probably wouldn’t have even decided to do something else if it hadn’t.

We were kind of missing out on some of the things we thought brokers should be for active F&U traders like us. When we started the business we were just trying to solve that problem. And the only reason any of this could happen was because NSE started a platform called NSE Now like an in-house trading platform which they gave for free of cost to brokers.

Mangalam: How does discount broking work?

Nithin: For every trade that one executes in the equity markets, they are required to shell out a brokerage charge. This charge usually varies between 0.2% to 1% of every trades value. Brokers use these charges to cover expenses like research, relationship managers and advertising, etc. However, discount broking works like a no-frills airline. They offer neither research nor relationship managers; nor do they advertise. In fact, the saved cost is passed on in the form of low to no brokerage charges; usually it is just a flat fee. For instance, a leading online broker offers options trading at a charge of Rs 5 a lot; whereas Zerodha offers a flat rate of Rs 20 per trade in index options. So, with a trade of 100 lots, the leading broker will charge a brokerage of Rs 500 whereas the same service offered by discount brokers like Zerodha would come for Rs 20.

Watch the complete episode here to find out more about Zerodha’s journey as CNBC-TV18’s Disruptors.
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