With money gaining more liquidity and dynamism with stock trading, people have aligned their financial selves with the trends and patterns of this ever-changing field. Updates about the highs and lows of the business are of great interest to the people involved. The wealthy in this field usually grab people’s attention with their advice on changing paradigms.
Recently, Nithin Kamath, founder and CEO of online brokerage Zerodha, posted a thread on Twitter, where he shared his views on potential disruptions in the future of the trading business. According to Kamath, the financial space of brokerage and exchange can cause severe disruptions caused by cryptocurrency.
Kamath wrote in his tweet: “It is often asked who can disrupt online exchanges and brokers in the new age. I don’t think it will be a new stock exchange or other stockbroking company. It will most likely be an outsider, like Crypto.”
They ask me a lot, who do you think can disable online brokers or even exchanges? It will most likely be an outsider, possibly Crypto. That’s why 1/6 – Nithin Kamath (@Nithin0dha) September 9, 2021
According to Kamath, the only way a brokerage and exchange business could experience disruption is if “someone plots a way to pay people for trading, passive brokerage, or numbers in such a way that all clients make money.”
In brokerage or trading, whether in terms of pricing or product, there is not much left to disrupt. Unless of course, someone plots a way to pay people money for trading (–broking–not allowed by regulations) or numbers a way to help all clients make money (very difficult) 2/6 – Nithin Kamath (@Nithin0dha) September 9, 2021
Zroudha was the latest turmoil that came to be disguised as turmoil in stock trading and brokerage when the company offered meager discounts and brokerage fees. Before Zerodha entered the trading space and the spread of financial technology, brokers used to charge high commissions. Zerodha broke the paradigm and introduced low-margin brokerage fees, resulting in low-cost trading dominating the space. This forced traditional brokers to either lower their fees or go into other areas.
Brokers generally rely on a very limited trader base. If traders switch to other options, it could significantly disrupt the brokerage business. Kamath stated on the topic, “There is not much left to disrupt the brokerage and exchange business, both on the pricing and product fronts. However, if merchants switch to trading something else, it could disrupt everything.”
Brokers and exchanges rely on a small group of active traders, about a million traders for revenue. If they start trading something else, it will disrupt everything. By the way, active traders also provide liquidity, reduce impact cost and risk, and help better price discovery. 3/6 – Nithin Kamath (@Nithin0dha) September 9, 2021
According to Kamath, traders strive for high leverage, open markets for a longer period, and volatility, which Crypto provides without fail, overrunning stocks. “Of course, cryptocurrency trading is much more risky without any basic information about price movements. But greed is usually in most people’s favor over time,” Kamath said in a Twitter thread.
It is cryptocurrency that has recently disrupted brokers and exchanges in the United States. Coinbase has $180 billion in assets under management, and Robinhood Crypto has nearly $11.5 billion in crypto assets. Many incumbents could not respond quickly, fearing regulatory backlash and often missed the bus. 5/6 – Nithin Kamath (@Nithin0dha) September 9, 2021
Although Crypto has not gained the momentum needed to disrupt trading and brokerage, Kamath believes that India is heading in the same direction that the United States was heading a few years ago. “Cryptocurrencies are what has been holding brokers and their exchanges in the US lately.”
Kamath compared assets under management (AUM) for Coinbase, which is about $180 billion, and Robinhood Crypto, which is about $11.5 billion, noting the recent collapse of Robinhood and how people were unable to respond in time.
Zerodha recently entered the mutual fund space after receiving initial approval from SEBI to establish an Asset Management Company (AMC).
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