'Supply of quantitative tools is shifting traders to tech-savvy brokers'

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The Indian brokerage industry is one of the most transformed industries in comparison with other global brokerage houses. The brokerage industry in India has converted from call-n-order to click-n-order in the fastest way.

The Indian broking industry has been through various hurdles such as the race to zero brokerage, two-step verification process, employment of sophisticated technology, and SEBI amendments to safeguard investors. In spite of the hurdles in the whole journey, the Indian brokerage industry has grown multi-fold.

However, the recent move of introducing quantitative tools to facilitate traders have created two sets of brokers basket where a few brokers have gained a significant market share on the cost of other broker’s client portfolio.

Volumes have been increased and effortless-experience for users has increased the demand for tech-savvy brokers.

Due to the inculcation of sophisticated quantitative tools into their trading platforms, the brokers have acquired many clients while other sets of brokers are losing their clients.

Led by providing a plain-vanilla trading experience to the users’ orthodox brokers are unable to augment their expenses and are forced to withdraw their broking licenses.

One thing was safeguarding the orthodox brokers from competition that they were providing healthy margins to trade to a number of clients. This was helping the brokers to preserve their client portfolio and generates revenues.

However, the recent stipulation drawn by the regulator SEBI to demand full margins from the clients has discarded their presence in the broking industry.

Types of Quantitative tools provided by tech-savvy brokers:

Introduction of Derivative Analysis:

Led by rising volumes in the Indian equity and other markets traders have started shifting on information derived from the activity of institutional investors. It is worth mentioning that the derivative market provides an informative sight of big player activities. Various tech-savvy brokers have started delivering an efficient analysis of the derivatives market that helps the investors to confident their trading positions.

Brokers provide the analysis of derivatives data in a more attractive and understandable form. The display of derivative data in the form of tables, pie charts, and bar charts has provided an effortless experience to the users.

Algo-Trading and Back-testing:

The rising popularity of algo-trading due to the unavailability of fear and greed associated with discretionary trading has changed the universe of trading in a most dramatic way.Majority of the volumes in the markets of developing economies come from algorithmic trading. In order to facilitate the existing clients’ brokers have started providing algorithmic trading platforms in which the client is required to provide a study as per which an algorithm will be developed by the brokerage house.

Although, this process required some more time to function smoothly. Moreover, tech-savvy brokers are providing a back-testing platform on which a client can check the performance of his study in past events.

Brokerage, Margin and Option Calculators:

Many clients get frustrated if they are not informed about the brokerages and margins required for a particular investment. They are fined by the authorities in case of less margin availability that reduces their interest.

Moreover, deploying math behind the process is cumbersome and time-taking. In order to simplify the process, the brokers provide readymade calculators for brokerage and margins.

To gauge calculation of option Greeks and profit/loss statement from options strategy building tech-savvy brokers have provided calculators to find the true value of an option and to derive Profit/Loss statement for an option strategy.

Stock scanner using fundamentals of the company:

It is worth mention that scanning of the stocks is not restricted to technical and statistical aspects. The majority of investors channel their funds on the basis of corporate consistency.

Companies that are consistently growing their revenues, maintaining low debt, and increasing operating margins are more preferred. Clients do scrutiny of all stocks through stock scanning and get a bifurcation list of those stocks that are complying with their parameters.

Tech-savvy brokers are continuously practicing to stand out themselves from others. Inculcations of new techniques after a short period of time is not a new normal. In the competitive environment, brokers are focusing on delighting their clients.

More spending is done in Research & Development to gain a competitive advantage. In all these achievements, orthodox brokers don’t even see as a part of the competition now.

It would not be a surprise to say that an oligopoly market of few brokers has captured almost all investors and they are delivering something new every day to lure clients. Competition is no more of pricing but for technology upgradation.

(The author is Founder & CEO at INVEST19)

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