Broker and the Bazaar

WARNING: This is a very lengthy post.

For some time I have been visiting this forum, mainly to see some trading strategies of fellow traders. Lately I was in search for a new Demat Account(I have been using mainly Kotak and HDFC so far) I visited this section dealing with "Demat and Broker" threads to get a feel on other people view on various Demat service providors.

Many of queries mentioned in this forum section i observed were repetitive in nature and many threads go off topic and end without any logical conclusion.

Comparision's are definately advisable to seek a relative view point. But they need to be healthy and serve some definate purpose. Do compare "India Bulls" with "ShareKhan". But be clear on your objectives and purpose before you start the thread. As Einstein said "Everything is relative"

My thread is more targeted towards new entrants in the market and also to streamline a few often asked queries.


Let me attempt to crystallize a few things which I feel are correct when evaluating brokers. Of course these are my views and you are free to disagree with any or all of them. I have taken artistic liberty in omitting certain things in attempt not to confuse newbies with data overload. Although I have mentioned my preference in few instances, I would advice you to heed your own discretion and judgment when selecting your broker. Please note that this thread is not to be considered as a field for judging which broker is best!


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1. Foremost, understand that these 5 parameters are separate entities in their own right. This are namely A) Brokerage & Misc charges B) Quote Software C) Execution Platform (D) Demat Account, and finally (E) Back office Support. Dont confuse or club them together. Let me now explain each in brief.

(A) Brokerage & Misc charges: This accounts for all the charges that you incur for your trading/investing. Please do try and account for every expense you might incur for your trading (including internet usage charges). A few example would be: Demat Account maintainance, Brokerage, Annual account Fee, Telephone based trading charges, trading software usage charges, etc. Understand what all charges you are bound to incur from your broker.

(B) Quote Software: Used mainly for technical study and for live quotes. Many people dont evaluate quote software. They typically use software that he or she has stumbled upon and stick with it just because they have eventually grown comfortable using it. They dont pay attention to the quality of data (how accurate it is). Or how fast and often it refreshes. Does it allow you to back test your strategy? Does it allow you to customize technical signals/parameters? Does it allow you to add new indicators? Does it allow you to see historic data? for what period is intra day data available. You might need all. But atleast be clear on what you need and ensure your quote software provides it.

Before people jump on my neck, let me clarify that a newbie wont necessarily need all this features now it self .. But dont start your trading career with bad habits. Take efforts to evaluate quote software. Good quote software is not free. They are costly. Best I have seen on Indian markets is esignal (www.esignal.com). I strongly urge newbies to avoid investing in any software until they are comfortable with doing Technical analysis from free web based online charting services. Once you have graduated to some level of expertise you can consider quality software like esignal.

(C) Execution Platform: Any platform that allows you to execute your trade fast. It should automate trade management and execution. Automatic protection against human errors. Consider for example "Ninja Trader". This software actually can store your trading style (like having a 10 point stop loss on index futures) and can auto apply it (of course you have to set it initially). It can also auto sell when it detects that your first level target is reached. No room for making emotional error's! and many such nice features that take room out of making human emotional errors.

Unfortunately Indian brokers dont have any candidates in this category. Best bet for you is to choose a platform which executes FAST. Fills your request in seconds.

(D) Demat Account: Open a Demat account with a well known establishment like NSDL, ICICI or HDFC. Although some broker offer free demat account, or offer a free zero balance saving bank account with a annual fee for a demat account. But NSDL and few other will charge you for a demat account. NSDL is promoted by UTI, IDBI and National Stock Exchange. https://nsdl.co.in

(E) Back office Support: Many of us have faced issues with back office support with our broker. RM trading without your knowledge, Funds not being transferred, Trades not being executed, etc are a few examples. Slow execution. Charges you for dial-in trade are a few others.
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2. Know your style: Are you an investor or a trader or a swing trader? YES SIR.... you will be surprised to know that each kind has his /her specific needs.

Based on your style you need to choose from above 5 parameters as to which are important to your style of execution and select appropriate broker.

Lets take an example. If you are an investor, the most valuable parameters for you will be "D" i.e. Demat account. Open a Demat with good bank like ICICI or HDFC or NSDL. You can check EOD charts from internet you need not worry about execution platform, Back office support. You can very well trade from Web interface. Slightly higher brokerage charges can also be forgiven

If you are a Swing trader, the most valuable parameter will be ("A & E") i.e.; Brokerage charges and Back office Support. Execution platform and Demat account may be given some concession. I know some people must be wondering why discount quote software? .... Now a days we have lot many free online web based charting services are available which allow you to analyze EOD data (example www.icharts.in). This also includes various technical studies.

If you are a day trader, the most valuable parameter for you would be all (and maybe a few more) except maybe Demat. You cant rely on web based online charting. You need lower brokerage charges. You need faster data feeds which are also accurate. You need faster execution. You need fast access and response from broker back office.

On this forum I once read a thread in traderji.com of people discussing annual charges for trading platform software. It sounded ridiculous to me that members discussing on this thread simply compared various vendors trading software charges WITHOUT discussing other parameters like accuracy of data, speed of refresh, features for technical studies, etc.

What will you rather have (1)"A software that is not 100% accurate, not flexible but is very cheap .. Only Rs.500/Month" OR (2) "A software that has accurate data, fast feeds and flexible to do your own studies and back test but is very costly Rs.5000/Month". I guess only a minority will opt for second option (Fair for beginners). Simply because why pay thousand for something which you might not use completely. Most of the Indian platforms are developed by Asian CERC or FT Technologies. They all have almost similar look and feel. They are good enough for getting quotes and doing basic technical studies. But none of them allow you to do advanced things like creating your own indicators, back testing, paper trade, Different type of alerts, etc.


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3. Dont include "Broker provided tips" as a deciding factor during evaluation. I separately mention this point as an educated good friend of mine zeroed in on a broker purely because the "broker provided calls/tips" were profitable in past. He is however happy with the broker to-date. But then he is an "occasional Swing trader". Just because your broker gives good "tips" does not qualify him to be competent in above parameters.


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4. None of the brokerage firm's will score perfect on ALL factors. Accept this. Even different location office/branch (of same broker) may vary in above parameters (if compared in different locations).

A brokerage firm giving great back office support in a suburb of Mumbai might have a bad support structure in Delhi! A broker office in suburb might offer you lower brokerage than your next door broker. ICICI might not be good choice for day trading but is great for an investments oriented senior citizen who was offered free trading+ saving accounts in ICICI.

Another mistake many people do is to simply open account to a broker nearest to them. In some cases it is acceptable (like say for investors, swing traders or those who wish to trade from brokers office). But might not be a good choice if you wish to trade from ur own computer or say from your home.

In short go through this thread and then checkout whats best that offers what suits your trading style. Prepare a XL sheet with all the parameters in order of importance. Choose the broker which score maximum. In case of a TIE, select the one nearest to you. But also as a precaution take online opinion from different users of same broker ...to avoid nasty surprises.


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5. Brokers are there to earn money. Any way they can. Its your duty to protect your interest. Believe in God, but lock your car.



I hope I was able to make some sense of this thread. Purpose of this thread was not to direct you to ways of evaluating brokers. But rather to streamline thought process when selecting a broker.

Please consider that these are my personal views and give it a considerate thought before you respond so as to make this a healthy discussion.

Stumper

Thanks for taking the time to give so much info....it will help the new people here


Good Work!!

Ps....when do u think Ninja Trader type of programs will be launched for indian mkts? 2 years? 1 year? 5 years? lets hope its early....it would help take out emotions from trading a bit

Hi Ratan,

It's anybody's guess as to IF and WHEN such software will be launched in INDIA. But on personal level I believe such software will not get launched in INDIA any time in near future. There are multiple reasons to believe this.

(1)Such software is costly and hence mostly afforded by professional traders (who make a living trading the markets). Such software make a living based on subscription fee.

(2)Also factor of "USEFULLNESS" comes into picture. We have never been exposed to such software's and hence ignorant about it. Naturally the Indian trader has adapted himself to utilizing mechanical ways of managing his trades quite successfully (Software like ninja trader however can take the emotional part away from trading. even professional's have an attack of anxiety on a day!!). You concentrate on other oppurtunity while the software manages the execution part (when it detects a condition has been met for buy/sell)

(3) Point #1 and #2 mentioned above lead to the cause of "Supply&Demand".
PS: I have never used "Metastock". Although its costly if compared to other INDIAN quote softwares but has features like ability to write your own indicators, back testing, etc. But as of now it can NOT be used as execution platform as it can not integrate with your broker's systems. So for the price it quotes i rather have something more reliable like esignal.

I have tried hard to clarify that there is a world of difference in a Quote software and Execution platform. "Ninja Trader" is good Execution platform but does not have good features on technical studies. "Esignal" and "Metastock" are good quote software but do not integrate with our brokerage system and hence dont help with execution. The typical software provided by our INDIAN brokers have few features of both world.


Thanks & Regards,
Stumper

HI,

Interesting post. Let me add a few things. You have covered a lot of ground. But you have missed one very vital point about brokers. The first and foremost point that makes people change brokerages is honesty. A few big brokerages have great RMs who will do anything to your account to get their commission. And if u encounter one of them, the first thing u do is close the account. And then tell others not to open an a/c with them. Then comes all your other stuff.

As per stuff like Ninja Trader etc, it is not a case of demand and supply. Simply those DOM based automated trading is not permitted in India. Or else they would have come in droves. Unlike trucks, you dont have incremental costs in providing software once it is developed...particularly the ones that run on the client machines and do not pose a load on your server. In India it is far more easier to sell such software buy luring unsuspecting traders...and this is a business of suckers...come and go...more the merrier. Why do you think data vendors over here have so many clients for intraday data even if they cost upwards of 36000 per annum?

Hi..Can you clarify that? Why is it not permitted?


CV

CV, excepting tradestation (the owners of which act as brokers too), I haven't come accross other softwares which provide this facility. Tradebolt is an option but it supports only selected brokers. Automation is still in its primate stage in India unforunately and if we were to manually trade a system, running the exploration, position sizing , and feeding in the data for order execution would result in significant slippages.

Dear CV,

Remember we had a discussion some time back about One Triggers Another and One Cancels Another etc. After that I had sent a mail to NSE through their contact link asking them for clarifications. Even though I do not have their exact response, the mail stated that they have only a few order matching system and gave the whole lot of blah. In the end it clearly said that as per SEBI guidelines they do not provide software based trading, All or None, Partial Fill and Good Till cancelled in FNO segment. However basket orders are allowed. Later on when I asked whether it was available to FIIs and Institutions I never got a reply from them. When I checked FT's description of ODIN Integrated and ODIN Institution Workstation, I did not see any description of this either.

Please give your inputs, if any.

Well CV, you do inspire me a lot..don't you? Why else would I go and search the dump of NSE after reading your mail, and not believing the reply given by some XYZ at NSE. And guess what I found in the dump.

NATIONAL STOCK EXCHANGE OF INDIA LIMITED
CAPITAL MARKET OPERATIONS
CIRCULAR

Circular no: NSE/CMO/0235/2005

Download No : NSE/CMTR/6552
Date : August 24, 2005

Dear Members,

Sub: Scheme governing use of facility relating to Computer to Computer (CTCL) trading / Internet based Trading

2.12 A member shall not develop and/or use any software / program which shall either directly or indirectly facilitate automated trading without prior written permission of the Exchange. The term Automated Trading shall mean and include any software or facility by the use of which, upon the fulfillment of certain specified parameters, without the necessity of manual entry of orders, buy/sell orders are automatically generated and pushed into the trading system of the Exchange for the purpose of matching.

The "prior written permission" makes it interesting, doesn't it? Why dont you have a chat with your broker and know about the current status?

And when you are free, do reply to some of my questions.

Regards

Sure but there can be broker side options, exchanges need not support them.
Its again a case for demand and software implementation than anything else.

lol..that is interesting. I know fairly well that many institutions engage in automated trading, perhaps they want to make it harder for the average guy.Currently I am not really interested in automated execution, I preferrably wud hire college kids to do the order entry than to use a platform w/o many lifecycles of realtime testing.

Also, would reply to all your questions, it just has been very busy with all the volatility...once/twice a year phenomena

Rgds
CV