As money gained more fluidity and dynamicity with stock trading, people have aligned their financial psyche to the trends and patterns of this constantly changing realm. Updates about the rises and falls in the business are of high interest to the people involved. Affluent people in the field generally grasp people’s attention with their advice about the changing paradigms.
Recently, Nithin Kamath, founder and CEO of the online brokerage firm Zerodha, posted a Twitter thread, sharing his viewpoints about the possible disruptions in the future of trading business. According to Kamath, the financial space of brokering and exchanging can have severe disruptions induced by Cryptocurrency.
In his tweet, Kamath wrote, “I often get asked who can disrupt the new-age online brokers and exchanges. I don’t think it will be a new stock exchange or another stock brokerage firm. It will most likely be an outsider, like Crypto.”
I get asked often, who out there do you think can disrupt the new-age online brokers or even exchanges?Me: I don’t think it will be another stock brokerage firm or a new stock exchange. It will most likely be an outsider, maybe Crypto. Here is why👇 1/6— Nithin Kamath (@Nithin0dha) September 9, 2021
According to Kamath, the only way the broking and exchange business could face disruption is if “someone figures a way to pay people money for trading, i.e., negative brokerage, or figures a way by which all the customers make money.”
In broking or exchange business, both on pricing and product, there is not much left to disrupt. Unless of course, someone figures a way to pay people money for trading (-ve brokerage😉not allowed by regulation) or figures a way to help all customers make money (😬very tough) 2/6— Nithin Kamath (@Nithin0dha) September 9, 2021
Zerodha was the last disruption that came veiled as a disruption in the stock trading and brokerage business when the firm offered discounts and a meager brokerage fee. Before Zerodha entered the trading space and fin-tech proliferated, brokers used to charge high commissions. Zerodha broke the paradigm and offered a low-margin brokerage fee, resulting in low-cost trading dominating the space. This forced the traditional brokers to either slash their fee or step into other fields.
Brokers generally depend on a very limited trader base. If the traders switch to other options, it could majorly disrupt the brokerage businesses. Kamath, in the thread, mentioned, “There is not much left to disrupt in the broking and exchange business, both on pricing and product. However, if the traders switch to trading something else, it could disrupt everything.”
Brokers & exchanges depend on a small group of active traders, ~1million traders for revenue. If they start trading something else, that will disrupt everything. Btw, active traders also provide liquidity, reduce impact cost & risk, & help better price discovery. 3/6— Nithin Kamath (@Nithin0dha) September 9, 2021
According to Kamath, traders seek high leverage, longer opening of the markets, and volatility, which Crypto provides without fail, scoring overstocks. “Of course, trading crypto is riskier without any fundamental information on price movements. But greed usually gets the better of most people with time,” said Kamath in the Twitter thread.
Crypto is what has recently disrupted brokers & exchanges in the US. The AUM of Coinbase is $180 billion, and the crypto AUM of Robinhood Crypto is ~$11.5bil. Many incumbents couldn't react quickly, fearing regulatory lash back and mostly missed the bus. 5/6— Nithin Kamath (@Nithin0dha) September 9, 2021
Even though Crypto is yet to gain the desired momentum to disrupt the trading and broking business, Kamath believed that India is heading towards the same destination the United States was headed a few years back. “Crypto is what recently disrupted brokers and exchanged in the US.”
Kamath compared the Asset-Under-Management (AUM) of Coinbase, which is around $180 billion, and Robinhood Crypto, which is roughly $11.5 billion, citing the recent crash that Robinhood went through and how people couldn’t react timely.
Zerodha recently entered the Mutual Funds space after it got in-principle approval from SEBI to set up an Asset Management Company (AMC).