The internet has had a fascinating impact on information and accessibility. Information is now democratised – everyone can get it whenever they choose to!
Exclusive insights and research reports are no longer the protected domain of large fishes of the sea, and can no longer be perceived as their USP. With faster speeds and more bandwidth, it is possible to challenge the hegemony of any big firm and deliver world-class, competitive services at a fraction of the cost.
Moreover, Covid has lead to few additional structural changes,
- More available time as people stay at home.
- More resources to invest in the stock market which in the short term seemingly offers one sided growth and better returns than Bank FD deposits and other alternatives.
All these factors have led to a surge in the popularity of discount brokers.
Larger numbers of people are now learning to invest and grow their money in capital markets. For beginners stepping into the market, discount brokers make perfect sense to start with.
What is a Discount Broking Firm?
A discount broker is a stockbroker who executes buy and sell orders at an extremely low or flat brokerage as compared to traditional brokers who charge a percentage of the transaction size. Discount brokers can provide similar services or better in some cases because they leverage technology, do not invest in (physical offices) branches and use digital platforms to fulfil customer needs and pass on all the costs saved to the customer in the form of reduced brokerage commission.Discount brokers are targeted towards self directed traders and investors.
How and why is it a growing market?
The year 2020 was unlike any other in recent memory. The coronavirus outbreak, killed hundreds of thousands of people and wrecked economies worldwide. Lockdowns forced millions of people to stay at home, devastating businesses and triggering huge job losses.
But it was also the year when markets after briefly sinking to new lows made a remarkable turnaround. It was also the year when retail investors took to markets in droves.
About 10 million new demat accounts were opened in 2020 as retail investors, confined to their homes, got time to study and manage stocks.
Definitely it’s a growing market, and there lies a lot of scope in picking it as a carrier, but starting discount broking involves a lot of strategy, documentation, and patience. Here are some essential steps for starting your own discount broking firm:
- Cover All Legal Bases:
Though stockbrokers play an important role in ensuring profits for their clients however, it is also important to consider that stockbrokers being in an authoritative position may harm the clients by misusing the confidence reposed on them.
Thus, the regulator SEBI defines, administers, and issues guidelines for the brokers’ functioning in the interest of the public.
Discount brokers need to comply with all SEBI and Stock exchanges compliances all the time.
- Managing Funds:
Discount brokers rely on banks and clearing brokers for financing their operations. A bank or a clearing broker extends a loan in the form of bank guarantee / overdraft limit / excess margin funding, etc., which the discount broker has to repay / services with interest. This method of debt financing is popular since it leaves the broker with complete control of the company (i.e. without diluting its equity).
- Technology is the boom:
Almost every discount broker has a similar pricing structure hence to differentiate, every broker is focusing on technology. Discount brokers are investing heavily in technology to offer innovative solutions to investors as customers interact only with the trading terminals and don’t call the broker for trading.
Leading players have been seen to advance both their backend and frontend with the latest technologies such as order management systems, advanced charting, algo-trading & analytical solutions for technical and fundamental analysis, eKYC, risk & user management system etc. Let’s understand them better:
Desktop Trading Platform:
Desktop application offers parallel connectivity to multiple trading venues with access to smart features like
- Portfolio management
- Advanced order types like bracket/cover/off-hour orders
- Mutual funds
- Instrument trees
- Dynamic hedging tools
- Scanners
- Depth Scalpers
- TradeWise Tracker
- Kill Switches
- Multi-Leg Orders,
- Basket Orders,
- Custom Index Watch,
- Custom Order Books,
- Easy connectivity solutions with third party APIs for order generation,
- Workspace Personalization Choices and much more.
Vendors like uTrade desktop trading platform offers real-time sync for static and dynamic data across all its trading platforms, so your clients can switch devices anytime conveniently and always stay updated. uTrade desktop trading platform also offers comprehensive tools for technical analysis of multiple trading instruments.
Users may also operate on:
- Multiple Market Watches & Analytics
- Deep Order Books (with Live TBT and Snapshot Data Streams)
- Historical and Intraday Trading Charts
- Symbol Fundamental Analysis
- Margin Management
- Heat Maps
- Top Gainers/Losers,
- Trading Algos and much more.
Web Trading Apps:
Web Trading Apps provide you a one-stop, multi-language, multi-browser solution for clients and dealers seeking fast, intuitive and reliable web-browser based trading platforms.
This platform is perfect for people who want a simple user experience, with all the critical functionality directly from a web browser.
From its easy-to-use interface and modern design, this platform is simple to use and is suitable for both beginners and advanced traders. No need to download or install anything!
uTrade Web Pro packs features like
- Technical Scanners
- Alerts
- Depth Scalpers
- News and Social Media Instrument LookUp
- Advanced charting API integrations
- Easy Pay-in and Pay-out Utilities
- Account Summary and Report Generation Tools,
- Dedicated Indices Watch,
- Support for Advanced Order types like Bracket Order and Cover Order,
- Integrated Chat Solutions and many more.
With uTrade’s Workspace Builders, customize how your trading terminal looks and functions, so you can offer your client a workspace that is only their’s!!
Mobile Trading Apps:
In this fast paced life, when everything is on the go, uTrade’s Mobile apps on Android and iOS devices allows you to trade on the go.
uTrade’s mobile trading apps come with an intuitive user interface and allow
- Users to manage multiple Market Watches
- Get access to advanced charts and technical indicators
- Easily square off positions and holdings directly from mobile dashboards
- View account summaries
- Download profit/loss statements.
Mobile trading apps are secured with two-factor authentication measures like OTP, fingerprint biometrics and face match.
The apps also allow push notifications that let clients stay updated with orders and trades statuses, live announcements and messages from Exchanges, margin updates and broker research & advisory.
Build your own trading terminals – API Ecosystem:
Build custom trading terminals on desktop, web, mobile, smart watches, code strategies in-house, design custom strategy frontends and more using uTrade’s API Kits, which offer a 100% on-demand exposure to the backend infrastructure and internal services so you can leverage uTrade’s ultra low latency backend engine for your trading operations and exchanges connectivity with the freedom to integrate payment gateway , back office, penny drop, vendors as per your comfort.
The API also allows you to design custom alerts and response flows, and is equipped with logics that ensure minimum turnaround latency.
Risk and User Management:
uTrade RMS is a modular and comprehensive risk management solution that can be used for pre-trade and post-trade risk management across a wide variety of asset classes and stock exchanges.
It is a one-stop solution for creating and managing trading clients, dealers, administrators and different nodes/branches within an organization’s defined hierarchy.
uTrade RMS is your most friendly and reliable companion for managing clients & internal teams with following features:
- Manage a large client base spread across multiple servers on a single, centralized application.
- Define over 300 different risk limits for clients & dealers, on exchange level, exchange segment level, trading product level, asset classes and scrip groups level, custom baskets level – and many more!
- The RMS is equipped to handle multiple currencies, so your clients can run their operations in different markets and currencies and your risk team can conveniently manage all exposure on uTrade.
- Both live and historical trade activity data available on all dashboards, and can be exported for analysis as well.
- The system automatically downloads and processes all margin related data according to your requirements
- Automated alerts for risk breach and corrective measures for both admins and clients across application screens, email, SMS also available.
- uTrade RMS supports dozens of file upload formats for different use-cases, and also integrates with your backoffice APIs for automated data flow.
- Innovative implementation for Super Dealer, Super Admin roles, Options Delta & IV exposure control, Margin sharing across linked accounts, and compliance assistance checks for high frequency traders (to control cancellations & modifications).
- You can also use uTrade ORMS as a second layer of protection and validation, over and above your existing RMS setup.
AI Powered eKYC Solution:
Gone are the days when people waited in queues to submit their identity cards in government offices.
uTrade offers AI powered smart systems that automate and secure your organization’s eKYC processes.
It includes customizable onboarding process, flexible data validation and AI driven
identity validations. We’ve crafted one of the most efficient and fully automated KYC workflows in collaboration with relevant large institutions and industry experts.
We understand your needs, hence have designed a system that lets you onboard clients smartly with more confidence and less friction than ever. This reduces the otherwise multi-day physical process to a 1 minute online process – & the data can even be reused for future KYC requests.
- Marketing:
In the hyper competitive world of dozens of good discount brokers, digital marketing to acquire good target clients at a competitive cost is the business focus for everyone.
Digital Marketing: Digital marketing entails search engine optimization, on platforms like google and social media, to attract potential customers to the discount broker’s website / mobile app for sign ups and ekyc.
Affiliate marketing: Affiliate marketing is the process of having third party affiliates bring customers to discount brokers, for a share of commission.
Content Marketing: It is a strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a targeted audience. Content may be in the form of videos, blogs, images, podcasts etc.
Please reach out to us if you would like to discuss any related topic.
Happy broking.
