To run a brokerage firm is to live with contradictions
To run a brokerage firm is to live with contradictions. Especially if you have a fine-tuned moral and ethical compass.😬
By far the biggest contradiction I live with is around leverage. I was thinking about this because Mridul Arora asked me about it recently, and I couldn’t answer it as well as I wanted to on the spot.
For years, I’ve spoken about the dangers of leverage. Yet we’re probably one of the businesses that has benefited the most from it, whether through intraday trading, F&O, or now MTF. Our MTF book has scaled to nearly ₹9,000 crore in just about 18 months since launch.
I’ve been warning traders about leverage, overtrading, and excessive risk-taking since the day we started Zerodha, fully aware that our revenues would take a hit if everyone actually followed that advice.
These contradictions have become harder to live with since the business took off post-2020. At least until then, the pursuit of revenue and profits made some of these contradictions easier to rationalize. 🙂
It hurts when customers lose money because of leverage on our platform, even though leverage is standard across brokerages. And yes, we’ve never triggered customers to trade or encouraged excessive activity, but that doesn’t completely resolve the discomfort. When you believe something can be harmful, it’s difficult to be entirely at peace with benefiting from it.
I don’t know if there is a perfect answer to this. What we have instead been trying to do is invest heavily in educating users through Varsity and other initiatives. We go the extra mile to dissuade users from taking actions that aren’t good for them. We also actively build features that try to stop people from doing things that may not work well through nudges, kill switch, and not sending notifications designed to provoke people into taking action; basically, being human-centric instead of engagement-centric.
I understand that I may sound like a hypocrite in saying all this, and it’s a comment I regularly get whenever I tweet similar things.
But the contradiction still remains.