Splurge of trading applications- does it really shower money?

During 2020-21, the country was struggling with the covid-19 outbreak, which led to a sharp rise in unemployment; it seemed that recession gripped the entire country. At such a time when most businesses and industries were choking, the Indian stock broking industry witnessed unbelievable growth, acquiring thousands of customers on a daily basis. As of March 31, 2021 brokerage industry's gross income stood at around Rs 27500 – 28500 crores, which is 30-35 % higher than last year (Wowzah, it's huge). The industry added 14.2 million new Demat accounts during the year 2020 (seems to be as easy as ordering food on Swiggy, not that fast, maybe :p ). This mammoth growth can be accounted to multiple factors which existed simultaneously that had never happened in history. A few such factors are: indices touching lifetime high, high liquidity, people being locked indoors, and very low returns from traditional saving instruments. 

Apart from the above-stated factors, two other underlying factors, namely penetration of mobile internet and rise of discount brokers, played the role of enablers. Discount brokers who can open Demat accounts within a day and with minimum or even free of cost at times have risen. Add to this India's demographic profile (36% of the population between the age of 18-35 years) which makes it ideal for the brokerage industry to multifold itself. As most millennials are tech-savvy and price-conscious, they prefer discount brokers over traditional ones. Over and above charging nil fees, their free informative content acts as a cherry on the pie.  

Can I effectively trade through Trading Applications? 

Yes, you sure can. Thanks to the trading firms who developed agile applications. They are no less responsive than trading on a desktop system. However, before arriving at your decision, ensure that your app offers all the must-have features. Ensure that facilities like accommodative watchlist (to miss no profitable trade, hehe), multiple chart types to analyze the price fluctuations, loads of indicators so you can pick the one you need, having options is always better), does not require super-high bandwidth to run (coz we live in India bro), real-time tracking of derivatives and their position, international fund transfer via banking, adding resistance levels, and lastly ability to add and withdraw funds through the app is available. 

The Zerodha Kite application, IIFL market application, and Angel broking App are a few that all traders embrace. 

Is Algo trading a real thing? Like computer's trade? 

It is not only real, but it is shockingly real. Even SEBI, in the recent past, on December 9, 2021, launched a consultation paper. This paper expressed the regulatory institute's concern over algorithmic trading; they are inviting views from both the industry and people to understand the possible threats that algo trading poses. In a statement, SEBI said that the common man's well-being is of concern as a large number of retail investors are pouring in (including people resorting to algo trading). 

It has been observed by SEBI that investors automate their trade using APIs and with the help of third-party algorithms. As per industry leaders, paper implications go as far as withdrawal of APIs that are currently offered by stockbrokers. However, stockbrokers are not very happy about this potential regulation and feel that it will take the industry a bit backward. 

Why Stock Market is hitting a record high

First and foremost, it is no more cumbersome; it is as easy as slicing butter (this comparison is not an exaggeration bro, people literally just swipe to take a trade). 

Liquidity is another reason for the increase of active users – All this influx of money and rising savings of the upper-middle class; the money's got to go somewhere! 

While all the traditional investment options are dying a slow death owing to their unattractive returns and complex conditions, the stock market is the lady whose temptations are hard to resist (even by housewives, yes; they trade too). In such a scenario, it is obvious that trading through applications would be a preferred investment spot and how! The increasing numbers are crazy (coming in coming paragraphs, hehe)

Stocks became an obvious choice for the people as they gave higher returns in comparison to the other available asset classes. 

Educating role of the discount broker has shaped the thinking of the young generation; while earlier it was cursed by many and compared with gambling, now it is seen as an avenue of investment and earning. 

Major Stock brokers in India

The below-given scenario comes into play by ranking the stockbrokers as per their total number of unique active clients. With the highest number of active clients, Zerodha stands as the biggest stockbroker in India. Followed by Upstox, Angel broking, Groww, and ICICI Securities Ltd.

 Zerodha has around 54.84 lakh, active clients on its platform. The other stockbrokers following are Angel Broking (28.61 lakh clients), Groww (26.71 lakh clients), ICICI Securities (26.05 lakh clients), 5Paisa (13.36 lakh clients), Kotak Securities (10.65 lakh clients), HDFC Securities (10.37 Lakh clients), IIFL Securities (7.98 lakh clients), Motilal Oswal Group (7.67 lakh clients) and Sharekhan (7.60 lakh clients). Together these stockbrokers constitute over 83.54% of the total share of the unique clients registered on NSE.

Going Forward and Future 

Earlier traditional brokers have enjoyed dominance in the industry, but the increase in smartphone users and shift in the country's demography allowed the new breed of brokers known as discount brokers. Price-conscious Indian investors opting for discount brokers is an obvious choice. 

The Indian brokerage industry has grown at around 7.69% during the last five years and is expected to keep growing at the current rate for the next five years. This is because of the digitization and demographic of the country; Millennials and Gen Z are more aware and educated towards the market, they are not risk-averse like the previous generation, they are more informed as investors.  

Wow, I will be a millionaire now (a novice while opening a trading account)

Hang on.. Can you be a millionaire by trading? For Sure. 

What are the chances? Very (very, very) thin. (Ouch) 

It is a recorded history that new investors have been burned in the stock market. Over a period of time, only a few sustain profitably. It is so because of the volatile nature of the stock market (and human greed, of course). Let alone profit; in the past people, have had to sell their property to clear the debt that piled up as they traded using broker margins (extra money that they don't actually have, kinda like loans but without any mortgage). Even today, when margin facility has been almost revoked, the threat of Capital wash-away always persists. Inexperienced and irresponsible trading is fueled by peer pressure and all the lucrative advertising campaigns that a company runs. 

Now you know why it is said that: Trading is life-changing. (It sure is, although can't say which way.)

In a nutshell, trade cautiously, responsibly, and gradually. The stock market has the capability to earn you lakhs in no time (or vice-versa). Before plunging in, I strongly recommend equipping yourself with as much knowledge as possible. A list of books, podcasts, and websites has been curated specially for you (these are not random, I vouch for them). Go through it, sharpen your axe, earn money (transfer me some :p). 

Happy Learning, folks!!

Resources: 

Books

Podcasts

Websites

  • The Intelligent Investor by Benjamin Graham 
  • The Money Tree Investing Podcast
  • Investopedia.com
  • Learn to earn by Pete Lynch
  • The Rich Dad Show 
  • Google Finance
  • The Essays of Warren Buffet by Warren Buffett
  • Mad money with Jim Cramer 
  • Moneycontrol.com
  • A Random walk at wall street by Burton Malkiel
  • Tickertape.in
  • One Up on Wallstreet by Peter Lynch
  • Screener.in
  • Common Stocks & Uncommon Profit _ Philip Fisher 
  • Ticker.finology.in 
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