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As money became more fluid and dynamic with stock trading, people aligned their financial psyche with the trends and patterns of this ever-changing field. Updates on business rises and falls are of great interest to those affected. Well-to-do people in the field usually capture people’s attention with their advice on changing paradigms.
Recently, Nithin Kamath, founder and CEO of online brokerage firm Zerodha, posted a Twitter thread, sharing his views on possible disruptions in the future of business operations. According to Kamath, the brokerage and exchange financial space can have serious cryptocurrency-induced disruption.
In his tweet, Kamath wrote, “I am often asked who can disrupt new age online brokers and exchanges. I don’t think it will be a new exchange or another brokerage firm. It will most likely be a foreigner, like Crypto.
I am often asked who do you think can disrupt online brokers or even new age exchanges? Me: I don’t think it will be another stock exchange or a new stock exchange. It will most likely be a foreigner, possibly Crypto. Here’s why👇 1 / 6— Nithin Kamath (@ Nithin0dha) September 9, 2021
According to Kamath, the only way the brokerage and trading business could be disrupted is if “someone finds a way to pay people money for trading i.e. negative brokerage, or a means by which all customers make money “.
In the business of brokerage or exchange, both on prices and on products, there is not much left to disrupt. Unless, of course, someone finds a way to pay people money for trading (-regulation not allowed by regulation) or finds a way to help all customers make money. (Very difficult) 2 / 6— Nithin Kamath (@ Nithin0dha) September 9, 2021
Zerodha was the last disruption veiled as a disruption to stock trading and brokerage business when the company offered discounts and meager brokerage fees. Before Zerodha entered the trading space and financial technologies proliferated, brokers charged high commissions. Zerodha broke the paradigm and offered low margin brokerage fees, which allowed low cost trading to dominate the space. This has forced traditional brokers to lower their fees or move into other areas.
Brokers generally depend on a very limited base of traders. If traders switch to other options, it could disrupt brokerage business significantly. Kamath, in the thread, said, “There isn’t much left to disrupt the brokerage and trading business, both price and product. However, if traders move on, it could disrupt everything. “
Brokers and exchanges depend on a small group of active traders, around 1 million traders for their income. If they start to trade something else, it will disrupt everything. Besides, active traders also provide liquidity, reduce costs and impact risks and help in better price discovery. 3/6 – Nithin Kamath (@ Nithin0dha) September 9, 2021
According to Kamath, traders are looking for high leverage, longer market openings and volatility, which Crypto provides without fail, scoring overstocks. “Of course, crypto trading is riskier without any fundamental information about price movements. But greed usually gets the better of most people over time,” Kamath said in the Twitter thread.
Crypto is what recently disrupted brokers and exchanges in the United States. Coinbase’s AUM is $ 180 billion, and Robinhood Crypto’s crypto AUM is around $ 11.5 billion. Many incumbents were unable to react quickly, fearing regulatory backlash and most missed the bus. 5/6 – Nithin Kamath (@ Nithin0dha) September 9, 2021
Even though Crypto has yet to gain the desired momentum to disrupt trade and brokerage, Kamath believed India was heading to the same destination as the United States a few years ago. “Crypto is what recently disrupted brokers and traded in the United States.”
Kamath compared Coinbase’s Asset-Under-Management (AUM), which is around $ 180 billion, and Robinhood Crypto, which is around $ 11.5 billion, citing the recent crash Robinhood suffered. and how people could not respond in a timely manner.
Zerodha recently entered the mutual fund space after obtaining SEBI’s approval in principle to create an asset management company (AMC).
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