Hi,
With due respect to the TJ member and his analysis, we can not comment on his data and cost analysis since we have not carried out any such industry wise analysis. Two issues that we may address are Safety of client money? Is it any way related to size of company or the regulator the way industry is regulated? Second is broker's profitability.
As far as safety of client is concern SEBI and NSE have taken enough steps towards it and the regulatory system will keep getting more complex in times to come. Recently one step taken by regulator is that all Members need to confirm that all their positions in their Pro Account are against the margin available in their Pro Account. Few more steps on this is expected in future also. This step is to curb possibility of a member taking positions against overall margin hence ensuring safety of client money. So even if a member does make some losses in Pro Trading client money remains safe. Anyway at VPS we do not do any Pro Trading. We are a company completely focused on retail clients, hence our product are designed to provide advantage to a retail client. In our product we have not laid emphasis on large volume, so all clients who trade with even 10K capital are as important to us as any client having more then few lacs in trading a/c. Majority of retail traders trade with less than 1 lac in their a/c. RMS system of all discount brokers does not permit anyone taking positions more then the amount available in their trading a/c in Cash segment and in F&O NSE itself does not permit to do so. Our RMS is not as liberal even for intraday as it could be with conventional brokers. We have our offline verticals also and since 1996 we have seen quite a few number of market cycles and scams. Earlier RMS systems were not as efficient as these are now, and it help us manage scale in business now.
Now the question of a Broker going Broke? A broker may decide to go out of business, in last 2-3 years a number of brokers have surrendered their membership and as per process SEBI ensures that all clients of such brokers have got their money back. This is part of business, lot of big banks have closed their Institutional Desk, so it is upto a promoter/management to decide.
Now Does size guarantees Safety? NSEL fiasco - how does some big broker provide additional safety to their client? We are also NSEL member and once FMC said that this product is not under their regulation then why big names of broking did not advice their clients in investing against this instrument? So it is not size but how vigilant your broker is towards your safety that is more important. We have received query on this instrument form some TJ members and we had advised them against it.
Profitability/Sustainability of Business? All business are meant to be profitable some hit it early some hit it late, some never hit it. It is simply about cost of business and revenue generated from it. Cost factor differs from broker to broker, hence the scale will also differ. Since we operate from Tier II city we have a cost advantage. Since we also have offline vertical it provides us additional reach to offline customers. TSO also has this advantage.
A business becomes profitable when environment supports it - in broking business one needs to see a bull market to realise full potential of this business. One can analyse this by comparing size of balance sheet of broking house pre 2003 and post 2007. How did the business grow in bull market.
As far as we are concern we are growing yoy and adding more streams to generate revenue to be ready to see next bull market. Last but not the least, as a trader one should be more focused on trading profitably and we are focusing on this. Soon we will be introducing Algo on NOW using Amibroker with a tie up with Global Data Feed. Few more initiatives are underway and we will let the forum know.
happy trading,
Team VPS
