How Technology has Transformed Stockbroking in India
Before BSE introduced BOLT (BSE On-Line Trading) and exchanges went electronic, everything was done manually over the phone and by maintaining physical records but this is what is done now
In recent years, technology is definitely an over-used word in the world of stockbroking. While all brokers showcase their technological prowess and achievements, even the simplest requirements of traders/investors are often neglected. Capitalizing on buzzwords such as AI and Machine Learning has become a way of gaining popularity rather than finding solutions to the real problems faced by the market participants.
This is because most of the technology is outsourced by brokers to software companies which are not directly in touch with the ground realities of traders' expectations. Although there are many things to be achieved using technology, it has certainly changed the way people trade and invests in India to a large extent in the last 20 years. Before BSE introduced BOLT (BSE On-Line Trading) and exchanges went electronic, everything was done manually over the phone and by maintaining physical records.
Although there hasn't been much innovation in the recent past, we have come a long way from the mid-1990s when it took a minimum of 15-30 minutes for trade confirmation and receiving contract notes once in a while and trade execution was much slower. In comparison to today, you can get trade confirmation within 1 second and Electronic Contract Notes (ECN) at the end of the day by email without fail.
You can execute your own trades online and operate your trading and demat account seamlessly without any assistance of the broker. Below are some of the ways in with technology has transformed stockbroking:
Brokerage Fees– Over the years, brokerage fees have been reduced from an average of 0.5per cent – 2.5per cent of the total transaction value to about 20 rupees per trade regardless of the transaction value. Fixed fees per trade have been the biggest game changer in this decade. Technology has reduced the cost of doing business to a great extent. Since most of the work is being done online, physical presence and branches are not necessary.
Speed– There is an unbelievable improvement in the speed of order execution over the years. What used to take 15-30 minutes can now be done in a fraction of a second. The technologically advanced trading platforms usually execute trades within 100 milliseconds(1/ 600th of a second). For algorithmic trading, the speed is even faster. All stakeholders have massively benefitted by the speed of order execution as it allows people to enter and exit positions at will and thereby manage their portfolio more efficiently. Also, traders can directly execute their trades on the platform without having to involve the broker on the phone.
Liquidity & Volumes– An improvement in speed has led to the improvement of liquidity, and lowering of transaction costs which go hand-in-hand. The Indian markets are liquid and this is due to the fact that trades can be entered and exited with ease. The number of participants who trade in the markets has been gradually increasing in the long-run.
Access to Market Information– Unlike in the past, access to information has increased dramatically. Investors can now directly access the financials, annual reports, news and latest updates about publicly listed companies. The access to such information has enabled them to do their own research and analysis instead of blindly trusting the words of brokerages who give tips rampantly. Although access to information is there, it is not nearly where it needs to be. The vast majority of people who trade are still quite unaware of the very basic fundamentals which are needed to succeed in the market. However, access and awareness are going to further improve with the passage of time.
Transparency– As per SEBI regulations, the information and reporting systems that are to be followed by the brokers, transparency has increased leaps and bounds. The client to broker interactions through the online channel has improved the trust in brokers. Over the years, manipulative and deceitful market participants have been penalized and banned from the exchanges due to non-compliance. The knowledge of such actions has helped increase communication and transparency to a further extent. The way a broker deals with clients' funds has become more channelized and the act of doing quarterly settlements has helped instil good practices among the brokerage community.
After having highlighted the positive aspects, the fact remains that the Indian stockbroking industry continues to be dominated by traditional brokerages which have designed a business model around stock tips and trading advice. Due to the lack of proper knowledge and awareness, a vast majority of Indians continue to trade with such brokers expecting to make a lot of money. As a result, technology is not the main focus for such brokerages.
There are only a handful of brokers who focus on providing a reliable trading platform which caters to people who take their own trading decisions and are more concerned about the features of the platform and brokerage fees rather than trading tips which is a questionable practice, to say the least. Technology in the business of broking is very crucial as money is on the line and thus, the platforms must be reliabl.
According to me, offering a reliable and stable trading platform should be the main focus of a broker in today's circumstances.