Why Zerodha?

« Back to all videos


The idea with the Inside Zerodha series is to you give you a window into everything we are doing at Zerodha, talk about all our products, answer queries that you might have about using our platforms and more.

In the first video of the series, Nithin talks to Prateek (founder, Learnapp) about:

  1. 0:51 - The story of how Zerodha started

  2. 4:01 - Transparency in financial services

  3. 5:45 - Changes in the regulatory framework over the last 10 years

  4. 11:17 - Memorable moments in the journey

  5. 14:52 - Dealing with the noise on social media

  6. 15:20 - How does Zerodha make money and how big is Zerodha?

  7. 19:53 - Why should someone new choose to trade or invest with Zerodha?

  8. 29:13 - Conspiracy theories in the markets

  9. 34:06 - Various platforms at Zerodha

  10. 39:10 - The philosophy behind Zerodha's educational initiatives

  11. 44:17 - How do you arrive at 'what to build next at Zerodha'?

  12. 49:08 - What's Rainmatter?

  13. 54:50 - What's next

  14. 59:55 - Nudge - the next big thing at Zerodha

If you have any questions, do post them here on Tradingqna

Transcript of the video

Prateek: Hi guys, I'm Prateek Singh, the CEO and founder of LearnApp, a video education platform. And I've personally seen Zerodha grow over the last ten years.

And I know a lot of first-time account holders at Zerodha, and even LearnApp users want to know about Zerodha's journey, what they do, how they do stuff. So Nithin and I thought we'll create a series of videos explaining what Zerodha is.

So I have Nithin over here. Hi Nithin!

Nithin: Thanks Prateek, thanks for agreeing to do this. Can't think of a better person in this country who understands finance, can teach well and can produce as well. So, thanks for agreeing to do this.

Prateek: No, this is, this is cool. I'm going to ask you questions that hopefully no one else has asked you before. So this should be interesting. So let's start with this, right? So for all those who are new to Zerodha, tell us about the story, and how did Zerodha come to be, right?

Nithin: I mean, I'll keep it short. So, the thing is, I used to trade the markets, from, I think the late nineties, like 97, 98. Nikhil, my younger brother, joined me in trading around 2006, 2005. Around that time. So around 2009-10, you know, I mean, I had traded for like 10, 12 years, very actively, and I wanted to take a break from trading for a bit. Right, and I'd done nothing else other than trading in my life. So there was no other break other than saying, can we really build a brokerage firm that we didn't have as traders.

I mean, so what is that brokerage firm? When we started the business, it was essentially a firm which would not charge this heavy brokerage that traders had to pay back in the 2000s. I still remember, at one point, I was paying a hundred rupees per lot. So if you bought ten lots of options and sold you were losing 2000 rupees, in an online world where you have an online trader who's risking his own trading capital, it made no sense to pay that kind of brokerage. So, that was the idea when we started the business, we said, is there a way in 2010, when the world is going online, to be an online-only broker who caters to online-only traders, but is able to do it at a much lower cost. And so, we were the first ones to introduce the concept of a flat fee per trade model in the country.

The logic behind that was if the effort involved in executing the trade is the same, why should you charge more? And this is nothing unique. The discount brokers, as you call them, they started in the nineties - E*trade, Charles Schwab. It's just that in India, no one had tried it.

So we were the first ones to do it, and that's how Zerodha started in 2010. So it was firstly about low cost and secondly, about transparency.

One of the things that I always hated being a trader of a lot of broking firms was that the broker was always very opaque in the way he worked. I mean, your charges told you would be different to what you are actually charged. You would never be told about any tools, and you had to go research it yourself. There wouldn't be a support portal, and brokers wouldn't write blogs. They wouldn't ever come out and put their head on the table. So, we said, can we also be a very transparent kind of a business model where everything that we are as a business, you know, we talk about it, and all the customers get to know about it. And, so those were the two actual foundations on which the business started.

Prateek: I remember signing up for my second or third brokerage account about the time you started. But I don't think I had heard about Zerodha when you guys did. And I remember everything was 3 paisa, 30 paise and I thought 30 paise is not much, but it actually was percentage. So I think things were designed to confuse traders like us. And then I remember people talking about the Zerodha brokerage calculator. It sounds like such a simple thing now, But back then, it just was like, oh man! I actually know how much the broker is charging. So I think that that was interesting too.

Nithin: In finance, everywhere in the world, large companies make money by introducing this percentage word because no one understands percentages. And a percentage always seems small, but then it has a compounding effect. You know, when it comes it's good for you if you're making returns in a percentage. But as soon as charges become percentage, you're actually losing money also, again, in a compounded way.

Like I said right, the first one to two years were probably the toughest for us as a business because, when you start a business on a low-cost model, people automatically assume the quality is going to be bad. And then, you know, in this business of money, credibility is very important.

So people don't trust you with money very easily, especially if the cost is low. They're like what's the catch? Will you run away with my money? Also, we were like a small shop based out of Bangalore, and no one knew about it. So it took a while before people actually started trusting us. But yeah, I think, looking back, they are probably one of the best times I've had running this business — the first two, three years when it was the toughest to run the business.

Prateek: Nithin like when someone thinks of starting a startup, right, they do a tech startup, because you would think of online. No one thinks of disrupting or starting something in like a 100, 200-year old business like brokerage is like hundreds of years old now. And you thought of doing this in such a heavily regulated environment. I don't know how that happened, but I guess things just unravelled, but what happened over the last 10 years? The regulations, the landscape, how did it change over the last 10 years?

Nithin: I think SEBI has done a fantabulous job and even us coming into existence in 2010, the trigger was actually a SEBI regulation, and a lot of people don't know about this. So until 2009-2008, you know, until the financial crisis, brokers in India could allow customers to buy derivatives with any type of margin. In a sense, a broker could allow you to buy a lot of Nifty futures at a thousand rupees, and the other person could allow you to buy for Rs 50,000 a lot. As in, there was no mandatory requirement that you need to collect this much minimum, and it made no sense at all. Because overnight, you're taking such a high risk, allowing your customer to buy a lot of Nifty Futures at let's say 5,000 rupees, you know, you're giving him like a 50X exposure overnight where the risks can be completely off whack. So it didn't make sense to do broking business then, especially in a very low-cost model.

So after the financial crisis, when a lot of mid-caps collapsed, there was a lot of money lost by brokers. SEBI came in and said, overnight you need to carry this much minimum margin - SPAN plus exposure margin. And, and that was a trigger because that's when I realized when we were trading that now it's almost like a level playing field. So if everyone has to collect the same equal amount of margin, you can now potentially disrupt the pricing, right? Otherwise, you know, it's always about risk-to-reward. As in how much brokerage you charge should be commensurate with the risk you're taking. And a flat fee per trade wouldn't ever be commensurate with the kind of risk you would take for an overnight trade if you're not collecting the entire span + exposure margin.

So yeah, that was like one of the regulatory triggers. I think the biggest tipping point for us as a business was demonetization, Aadhaar and all of that. Because opening a trading account was a 40-page document. I don't know how many proofs, a lot of couriers to and fro it used to take almost 10 days, 15 days.

Prateek: If something goes wrong, send it again.

Nithin: Absolutely. I keep using this example, imagine you have to take an Ola, right? And then before you get into an Ola, you had to sign a 40-page document.

Prateek: Talk about Frictionless onboarding.

Nithin: Yeah. So yeah, I think that was the biggest tipping point, not just for us, for a lot of online digital financial services firms, which is that demonetization suddenly enabled Aadhaar to be used for KYC and for signature (e-Sign) which meant that we could now onboard a customer online. As in, you could do whatever was taking 10, 15 days in like 30 minutes. Today, someone can open an account with us in like 15 minutes; which is like a dream. And in the first six years of our business, it was taking us 14 days to open an account on average.

So yeah, that was a second big tipping point. Then over the last two, three years SEBI, because there were a bunch of these incidents with large brokers like Karvy, BMA Wealth like all of these guys. So, SEBI has come and again, kind of made the ecosystem a lot stricter and tighter. While it is bad for the broking business because the opportunities to generate revenue are coming down, it's very good for the customer because it kind of rings-fences the customer almost, from broker defaults and all of that. So yeah, when you start doing a business, especially as a startup, it's also very important that you get your regulatory direction right. So, your processes and your systems, you're building it the way you sit down and predict the future of your business. In a regulated business, you also have to kind of predict the regulatory regime. Have some kind of foresight saying regulations in five years from now can be this. And then you build your business for those regulations. And then as soon as those regulations come through.

Prateek: You're sort of ready.

Nithin: You actually get a boost because your competition is not ready. For example, this year, when this whole cash margin reporting requirement came into effect on September 1st, the entire industry was caught off guard. But like a bunch of us digital-first brokers, we were all ready for this because this is how we had done the business right from day one. I think this year, there've been 5 million accounts that were added from Feb-March til now and we've added a million. So we are 20%. And if you were to add, say three or four online, digital brokers, I think we would be 50% of that 5 million and the rest, would probably come from the remaining 400 odd brokers in the country. So yeah, I think that has also helped us. I think the first priority for us, as a business has always been to make sure that we don't break any regulations or compliance. We are always ready for any future regulations that can come and affect you. So we are already wired like that as a business, and this has helped us significantly as well.

Prateek: I think this is interesting, right? Like I think outsiders, we always think, Oh my God, Nithin is in a regulated business, It must be so difficult. But then I think there's a new perspective that you put on and say that if you can sort of have some foresight, and it's actually a huge advantage because the other peers may not be able to keep up.

Nithin: I keep talking about a regulatory moat, which is, regulations today actually stop a lot of competition from coming and competing with me, right? Like for example, you right, what you're doing as a business, there's no regulation, right? Anyone tomorrow could be thinking of your business idea and start the business tomorrow morning. But if someone wants to become a broker, it'll take him two years to become a broker from the time he thinks about it to set everything up. So that's your regulatory moat. While, you know, it seems like a lot of red tape etc., that red tape is what is actually giving you that moat over your competition.

Prateek: Since we are talking about the last 10 years, right? So what are the memorable moments and some milestones, but don't include only the good stuff, right? Tell us about the bad stuff as well.

Nithin: The memorable ones, I still remember the first few years, every 10,000 accounts we used to have this major celebration. And then we became the largest broker in the country, and we had a mega celebration. So yeah, those have been very memorable. I think maybe the most memorable moment for me personally is when we gave out stock options and liquidity to people who've been part of the business, and that was I think for me, the most memorable in this journey. The not so good ones - the thing is between 2016 until Aadhaar onboarding, we were at a lakh account. Today we are at 35 lakh accounts, right? So that means we went from 1 lakh to 35 lakh accounts in the last four years. And it took us six years to get to one lakh. And unfortunately in our industry, in our business, just us scaling is not enough.

Prateek: The ecosystem has to

Nithin: yeah. I mean the underlying infra has to scale, such as your lease lines that connect to the exchanges. So if I have to get bigger lease lines or more lease lines, I have to go to the exchanges, request them for lease lines. Which means it takes time to scale up. So we have to rely on the exchange's own capabilities. As in, in terms of how much they can handle. So which meant that, especially in 2017 and 18, when we had this sudden rush of new customers, there were a few incidents. I think there were at least four or five incidents where we had downtimes. And, I don't know how many times I've thought of jumping off a building at those times. Because unfortunately, we are the only businesses in this country, especially in this startup ecosystem where we can't afford downtime, right. And in a tech business, there is no concept of no downtime. As in, everyone from Google to Apple, to WhatsApp, everyone's going to have downtime. And if someone out there claims that he doesn't have downtime, he is lying. Because there is nothing called no downtime today, every business is run using tech, and every tech will have its downtime.

But yeah, unfortunately in our business, if you have downtime, it's a notional profit and loss for the customer. Now, if the customer makes a profit, he'll never come back to you, I mean, he's happy with the profit because of the downtime. But if there's a loss, you know...

Prateek: Twitter and everything did blow up, right? Like people just went nuts when this happens. And it just becomes one more thing for traders to talk about, I guess.

Nithin: So I think, I think 2018, 17, 18 was a little more frequent. But that's reduced significantly. But the problem today is that we are so big that even for one minute, some charts are not opening and we are trending on Twitter. So, which is, which is kind of quite scary, while it's exciting that we are large enough that we trend on Twitter for small incidents, but it's just that usually there's a lot of profanity.

Prateek: Do you not read this, or how do you deal with this? Like what, what do you do when something like this happens?

Nithin: I just tweeted about this same thing recently, and the way to look at this is - what doesn't kill you makes you stronger, and that's the only way to survive through this. Otherwise, you start taking into your head, you know, and I would probably sell this business and do something else. And that would not be good for our customers and not for the industry.

Prateek: Yeah. I mean, we keep talking about how big Zerodha is. So just give us some numbers and also I know that for investing you guys don't charge anything. So I know there are a lot of investors and, and it's actually zero. So how are you actually making money, and how does this work?

Nithin: We don't typically like to talk about how big we are. While we have gotten a lot of press, ideally all of us who are part of the core team would have loved to build this in stealth. But like I said earlier, in this business of finance and money credibility is important. Coming, talking to the press or talking numbers gives it credibility. So, here are some ballpark numbers. We do 15 to 20% of exchange volumes today. We are probably doing 5 to 7 million trades a day. At 5 to 7 million trades a day, we are probably the largest retail broker in the world, not just in India. But yeah, in India, you know, your per trade size is much lesser. So you can't really do an apple to apple comparison to someone in the US. As I said, this year we are opening 20 to 25% of all the new accounts that have been opened in the country. We run Coin, which is our direct mutual funds' platform, which has 7500 to 8,000 crores of AUM, which again makes it one of the largest online mutual funds platform.

Prateek: That's 3 years old, is it?

Nithin: That's 2017, yeah, It's almost three years old now. In terms of revenue and profitability, we do 400 to 500 crores of profit after tax (PAT) and last year was in that range. This year has been spectacular, so it'd be much larger than that. So yeah, we are probably the most profitable retail brokerage firm in the country. Now, the question that you asked is something that I get asked quite often, which is, if you don't charge for equity delivery trades, how do you make a profit? As in, where does the money come from?

What most people don't understand is that on the stock exchanges today, just 1-1.5% of the exchange trading volumes come from equity delivery trades, right. The whole buy a stock, wait for it to go up after a few days and sell crowd, that's just 1-1.5% of the turnover. So we don't charge brokerage only for that. We charge a brokerage for everything that's speculative. So everything that is, you know, people doing intraday trades or people doing futures and options trades, we charge 20 rupees. That's what we've been charging from day one. So in this 5 to 6 million trades that we do a day, 30 to 40% of these trades generate at least 20 bucks a trade. So if you do the math, you'll know how we are doing more than a 1000 crores of revenues.

Prateek: Like a broker freemium model, right? Some of it's free, some of it's not.

Nithin: The thing is, including my dad, who has been investing in the market for a long time, he never knew what futures and options were. I think what makes this whole thing tricky is 90% of people around you are contributing to that 1% of the turnover. That means 90% of the people around you who participate in the market are making only equity delivery trades. So, you know, when you start talking to people around you, and everyone's saying, I just buy stock, wait for it to go up, and I sell it, everyone assumes that this is what stock market is, right? That's not what all of the stock markets is. The stock market is also a lot of futures and options and intraday trades. But that turnover comes from just 5 to10% of the participants. So it's a very concentrated business. While we don't make money from the majority of our customers, I think the good thing that we have been able to achieve over the last 10 years is that we also cater to the largest trading community in the country, the very active day traders and active futures and options traders. Essentially people like me or like Nikhil from 2010.

That's the business we were trying to build. So we also cater to that audience, so that audience generates revenue and they subsidize the investor audience.

Prateek: Perfect. It seems like a lot of people are using Zerodha like you just told us. So why should someone trade or invest with Zerodha instead of say, one of the larger banks which have been around for longer also?

Nithin: Yeah, I think this is like a proper sales pitch. Over the journey of Zerodha, there were different reasons. If you were to ask me today, It isn't pricing. When we started the business, like I said, right, we were a low-cost broker, but today there are a dozen brokers who are offering at the same cost as we do. Today I think if you are thinking of trading or investing in the markets, I think you have to come to us firstly for the platforms, because of the product.

We started building Kite in 2014, and we launched it in 2015. So it has seen all kinds of cycles, all kinds of volatility. It has performed really well. Like I said, at 6-7 million trades, we are the fastest platform in the country, as in the time taken to execute an order etc. So it's performance, the user experience and the user interface. The reason it's so much better is that it's a more evolved product. And the good thing about Kailash who heads our tech and the tech team at Zerodha, is, is that they're almost fanatical about every small thing. If there is one tiny thing that can be improved, they will spend a month on improving it. So this product has been built by essentially fanatics, which is our tech team. And you will see that love and effort in every single button. You'll see it in every feature. Every new thing that we offer is meant to help our customer get better at trading or investing.

Prateek: It's not a very large tech team, right? How many tech guys do we have at Zerodha?

Nithin: We have 30 member X-Men tech team. I keep telling them that they're just superhuman.

Prateek: You had told me once that one tech guy can be equal to 15 or 20 or a 100. Like if you just get one really good developer.

Nithin: This is again one of those business philosophies. When I started the business, I had this whole idea that throwing people at problems helps you solve it. But I think it solves only small problems. The idea to go small was actually the influence of having Kailash around me. We realized that small teams work much better because there's a lot more bonding. There's a lot more responsibility that you have as a 15 member team working on one product. Otherwise, it's just, you know, it's a ping pong ball, and then there is politics, there is who gets credit for what and all of that. And so it's so much easier to run a business with a small tech team.

But yeah, if you're asking me, what are you most proud about? I think that we are proud of our products. If you're coming to Zerodha today, you have to come for products. While you come for products, we are also one of the lowest costing brokers in the country. So you're not paying a premium for it. We're absolutely transparent, and there is nothing that we charge that our customer doesn't know about, we hide nothing. The third thing is not a single person in our team has a revenue target. Because I have always known that if you put a revenue target to someone, he's going to go sell. And, when he sells something he's most likely going to miss sell, right.

Prateek: Which is the plague of financial markets?

Nithin: Absolutely. As in, one of the reasons I think the Indian stock market has such shallow participation is because of the relationship managers who keep selling some random product. I've seen this myself. My dad had these relationship managers with one of the traditional brokers back in early 2000 etc. The most horrible insurance policies were sold to him you because my dad has never spoken about his finances to me until a few years back where he sat down and said, you know what, I had invested in all of this can you tell me what is all of this about? And I was like, dude, how did you get so scammed into this That's, I think that's a very India problem because, in India, the person selling makes money from the manufacturer versus like someone in the US, when he sells a financial product, he charges you in advisory fees and gets nothing from the manufacturer. So the interests are aligned. Here, because you're making money from the manufacturer, the customer never gets to know what is actually being sold.

So yeah, we don't have any of that, not a single person at Zerodha will ever call a customer and say, buy this or sell this because we don't believe in such a business model. Which also means that there is no one in our offices who can do portfolio management and all of those things, which can potentially lose a customer money, that is one thing. And the third thing is we are extremely conservative in terms of risk, right? Through these last 10 years, we have never compromised on risk for anything. And the big problem in brokerage businesses is that you could essentially end up taking more risk and then be in a spot when there's a lot of volatility in the markets.

Prateek: And by risk, you mean that you're not giving too much leverage to your traders?

Nithin: Say assuming you come and say Nithin, I will give you one lakh brokerage, but allow me to buy a lot of Nifty futures with only a thousand rupees, I'll tell you, 99 of the hundred brokers will take it. But we are one of those who will not take the deal.

Prateek: About margins, do you ever do that? Like, do you raise margin requirements more than everyone else, does that happen?

Nithin: Yesterday there was a CII meet where there was discussion about capital adequacy ratio saying maybe you should have a capital adequacy ratio types for brokers as well, based on what is their own capital versus customers capital. As in, we would be by far the largest. I have no doubts about it, and I don't think there'll be any close comparison at all.

Prateek: Is it one of your regulatory foresight coming in over here that if this happens, we are ready?

Nithin: It's not even that, I think this is, this is more a learning from my trading days, which is, to sleep in peace, right? Because you don't want to be in a situation where you get up tomorrow morning, and suddenly you say, dude, we've been so aggressive that we have to find all this money somehow and, you know, you hear all of these deals, right? Suddenly someone sells a stake in a business to raise a lot of capital soon and stuff.

I don't want to be in a situation like that. So I'd rather say no to business than do that kind of a business. So that's been the philosophy in which the business has been built. So yeah, so these are some of the reasons. Finally, I don't know if it's good or bad but every single product that we built at Zerodha, it's always built with an idea saying, does it help the customer? They were never built with revenue growth and stuff like that in mind. It's always been, what I'm doing today is gonna help the customer or not help the customer. If it helps the customer, we are like it doesn't matter if you make money off it or not, let's go ahead and do it. And I think one of the reasons we get that freedom to be able to do all of this is because we have no external capital in the business. We haven't raised any debt. We don't have any, you know, professional money. Because when you have obligations, you end up trying to do stuff to get revenues faster.

Prateek: Please them versus actually build for the customer. Is that the difference?

Nithin: It's not just about equity capital. Assuming you have debt, right? Assuming I've taken a 100 crore loan at say 15%, I have to service this loan which means I have to make this 15 crores. Which means as a business, I have to find maybe straight ways, maybe twisted ways to get to that 15 crores, so we have none of those issues when it comes to equity capital. I think one of the challenges there for a founding team is, now you have to grow fast enough to please that guy, because, you know, otherwise, his money wouldn't grow. So we don't have any such obligations here. Which means that we continue to build our business just keeping the most important thing in our mind, always, which is, what's good for the customer. If it is good for the customer, it's eventually good for the business as well. And I think if nothing else, that's probably one of the reasons why you should open an account with us.

Prateek. Nice Nithin.

Nithin: That's a mega sales pitch.

Prateek: It's interesting. Since we're talking about the customer, we talk to a lot of traders because they are learning, trading and stuff. It's all these beginner traders talk about this and mostly, and even fueled by the web series that just released right now on the scam. A lot of traders say that operators and I don't know who these operators are, special people in smoky rooms smoking cigars can move stocks. And then also say that there are other kinds of people who will stop loss hunt and then reverse the market. So, what's the low down on these conspiracies.

Nithin: So this is something I've been hearing forever. My dad keeps talking about, you know, these guys push the market down today. I'm like, who are they and where are they? And I think like you said, these movies etc they just end up triggering these kinds of thoughts that there's somehow someone there is moving the markets. One thing's for sure in small stocks, penny stocks, etc, there are operators in a sense, these are folks who hold the majority of the stock so they can potentially move it up and down. I mean, I doubt there's any penny stock who doesn't have an operator.

And the best thing to do is to stay from such stuff, right? Personally, I think if you're a very active futures and options trader, I don't think you should look at anything outside of Nifty and Bank Nifty. Because they're liquid. The thing is, even if there was no operator in every stock, there's an insider who knows a little more than, you know. So in the business of derivatives trading, it's a zero-sum game. It is not only equity investing, where all of us can make money together. Derivatives trading, it's like almost like being in a sport. If I have to win, you have to lose.

And in a sport, the person who has a better edge has a higher chance of making money. So, if you're someone trading a random stock, you can invest in it if you think it's a good idea. But I don't think it's a really good idea to be trading derivatives on random stocks, which are not very liquid. So there are operators in penny stocks, but I don't think there are any operators in Nifty. And how does someone operate Nifty? And I keep listening to the stop-loss hunting story, which is, somehow someone has figured that at this price, my one lot stop-loss is placed.

Prateek: You spend a billion dollars apparently to move Nifty and take his top spot.

Nithin: Yeah. I mean, now the thing is you take the stop-out and then you have to reverse the direction as well right? I think that's too far fetched. I think one of the reasons why it seems like it is all happening is because most retail traders move in herds, which is the problem. The reason why the majority of the retail very active traders lose money is that they all think alike. They all have the same kind of biases like disposition bias, loss aversion bias, right. All of these biases affect all traders equally. The biggest challenge I think in the market is if you're making a loss, cutting it fast, if you are making a profit letting it run.

Prateek: People do the opposite, the exact opposite

Nithin: So how do you ever make money, right? As in, how do you ever make money? If you're going to keep cutting your winners fast and then keep on holding your losers. So yeah, so I think, I think this all seems like it is gamed because most retail traders are actually moving very similarly. So it ends up feeling like there's someone actually sitting and gaming, all of this. So I don't think there is anything called stop-loss hunting. Like I said, especially if you're trading Nifty, Bank Nifty etc, it's almost impossible to be doing stuff like that.

Prateek: I think the reason all this comes up is that he got stopped out, but needs to find a reason why, and he makes this up.

Nithin: Maybe we can take this up some in some other sessions. I've known like a zillion traders, and I've been very active interacting with traders from 2000 onwards. And I think the guys who stand out are people who own up to the losses. People who don't blame someone else for the losses and that's been the biggest differentiator if I were to compare a trader that I know who's made money versus who hasn't. A trader who has made money, I know that when he's losing, he will go back and say, let me figure out why I lost money versus someone else who was always constantly saying, you know, what it fell because you know, this news anchor wore a red color saree. So it's one of those very important traits required to be a good trader.

Prateek: So let's zoom out a little bit now from trading back to Zerodha. So what are the different platforms? I know Kite isn't the only platform right Nithin, you have a bunch of other platforms also. I think you tweeted or someone tweeted about it that there's like 35 lakh people in total actually using these platforms. So what are these platforms, and how are they designed?

Nithin: So we'll, we'll talk about it in detail over the next few videos, but, just to give an overview. Kite is the flagship product, which is where you trade and invest. So that's where you buy and sell stocks. While Kite has a lot of things, I think some of the very popular things on Kite are, firstly, the order window, like I said it's extremely fast. It's probably the fastest trading platform in the country. So we have different types of orders. We are probably one of the only few guys who offer a GTT order, which is a long-standing order. You can actually place an order and let it be for almost a year.

We have great charting. We give two types of charting ChartIQ and TradingView, the two most popular charting libraries in the world. On Kite, we have this thing called 20 market depth. Most trading platforms or all trading platforms in this country come with a 5 depth, you can see the best five bids and offers. We have a feature where you can see 20 depth. Surprisingly, you know, I'd never thought that this would happen but almost 70 to 80% of all business today happens in Kite mobile. So we are one of the lightest mobile apps out there and extremely powerful. Whatever you can do on the web you can also do on Kite mobile. And within the kite trading app, we have integrations to all these startups who build these nice little trading apps on top of us. So think of Kite as almost like Android and then, these apps as Play Store apps, which you can use once you open an account with us, so that's Kite.

Then there is Coin, which is the direct mutual fund app. You can invest in direct mutual funds without paying any commissions or any charges. So we make no money by selling any mutual fund on Coin. Then there is Console, which is our reporting platform. The thing is in trading, it's very important to also sit down and look at your trading past to figure out what you've done right or wrong. One of the most important things to look back and then learn from your mistakes. So, Console has great reporting, great Tax P&L, holdings visualization.

Along with that so if you're holding stocks and mutual funds, you can actually see your holding contribution from stocks, which are also part of the mutual funds. So we combine the mutual fund's underlying holdings with your other stocks, and we give you a visualization for that as well So an extremely good tool. In terms of trading products and platforms, these are the three. And, you know, but then we also have a very popular blog called Z-Connect, where we keep sharing everything.

I think today if anyone has any questions on anything related to support, we have this portal called support.zerodha.com which has explanations on all queries. If there's any query in mind, you can just go to support.zerodha.com and search for it. And then we also have Varsity, which is our educational initiative. It is today maybe the second or third largest educational portal behind Investopedia for capital market education in terms of activity, in terms of participants and content and all of that, So, yeah, so these are essentially all the in-house tools and products.

And, I keep getting asked this question on why Console, Kite, and Coin are three different products and not as one. This is the same reason why G-mail Google Calendar, Hangouts and Chat are separate apps. Because we are in a mobile-first world. Today 70 to 80% of everyone's business comes from mobile and integrating all the experiences into one mobile app makes it clunky. If you pick up any banking app in India, you will know why. It's just very uncomfortable. It's a very clunky app because they're just trying to do too many things on that one app. So, we took the Google-like approach to say that we have to create standalone apps and that's one of the reasons why each of these apps on its own, is very fast and very nimble.

Prateek: Awesome. So, Nithin, I will focus on another aspect. Varsity is one of the most popular, free to use learning platforms, not only in India but actually probably one of the best in the world, right? So we have another case there that's Karthik who's running that. So tell us about all the education initiatives. And I think the first time we also spoke like six years ago, it was based on education only, I guess. So tell us what Zerodha's focus is on education and why.

Nithin: This whole keeda of sharing knowledge has been there for a long time. I think, even before Zerodha, I used to run the largest Yahoo messenger group in India on the stock market. And I used to run this really large Orkut community on stock markets and Facebook groups etc. I dunno if it is vanity or what, but I used to like this whole acknowledgement, you know, when people say, oh, thanks for telling me this. I've always enjoyed the fact that I can share something and someone benefits out of this. So, even when we started Zerodha, the first thing we did after putting a website was actually to put up a blog and start blogging about everything that we knew about and started sharing, not just on Zerodha but you know on forums like Traderji.

I used to spend hours and hours together on that forum, answering people's queries. I also believe in this whole good karma concept, which is, you do good, and good comes back to you. Which is if I help you in some way, without any expectation in mind, you will probably think of me in some other form. And this has been the core to our growth as a business, and we have spent zero rupees on advertisement till date. So all the hours and hours of effort that has gone into sharing knowledge, helping customers out, is coming back to us in terms of customers referring more people to us.

Prateek: That compounded, right. This is the compounding that you are talking about.

Nithin: It is. It's very exciting as well. So one aspect was firstly, financial literacy in this country is really, really bad. People are never taught finance, people get their jobs, and they end up doing what the parents were doing or what their friends are doing, which typically is the wrong thing to do. Like for example, we were just discussing in Zerodha yesterday about how buying digital gold has become very popular right now. But then people will be 3% GST on it, and I'm like, dude, you pay 3% GST, you pay 1-2% commission, and there is a 1-2% spread, you're losing 6-7% buying this form of gold.

And everyone's thinking suddenly that this is the best way to buy gold. And a lot of online platforms are selling this digital, gold. So, now someone has to educate them, saying this is not the best form of gold. The best form of gold to buy today is probably Sovereign Gold Bonds where the government is giving you 2.5% interest or maybe even gold ETFs where you're paying just 0.5%-0.6% as an expense ratio.

So yeah, this has always been there. Is this education expecting something in return? Not at all. It's always been about - can I help someone? Because I can, which is, which is very exciting. I think this whole helping someone is very addictive. If you start doing it, you continue doing it more and more. So while we were doing a lot of blogging sharing knowledge on social media and all that, you know, Karthik was an old friend. So I met him in 2014, as in we used to work together and then he went to France to do his MBA. And then we had this whole idea, and he also liked education. So we said, why not just sit down and build this platform where we share as much knowledge as possible, but don't make it salesy. Don't have advertisements, don't spoil it the essence of sharing by putting all these random things out. Don't take leads and then and I'll suddenly keep sending them emails and open an account at Zerodha. Don't do stuff like that, just do it for the sake of fun. And Varsity has turned out beautifully in terms of how popular it's become. We run another initiative called Tradingqna, it's more like a Stackoverflow for the stock market.

Prateek: You're really active on it,

Nithin: Where I'm very active now. So I think, one of the other things I've realized is that by having all these education initiatives and being very active, as a founder of the business, you also gain a lot more market intelligence. You get to know what your customer is thinking about, what he wants to say etc. You're not relying on someone who's working with you, so you are actually getting firsthand information, and there is no other way to gain that kind of intelligence other than actually talking to the customer.

Prateek: I mean, a lot of large companies hire research people to research the customer. But over here, it's just direct to the consumer. Talk to them, understand the problem. Is that where you get all your insights about what to build next?

Nithin: Absolutely. As in, most of what we've built at Zerodha, the ones that have worked the most have been the ones that are built on instinct. You know, the ones, where I sat down made a document and sold it to 10 guys saying, you know what, we need to go do this because it can do this, this, this blah, blah, that hasn't worked. What has worked, what has done really well have been those that have been very instinctive. But the thing is, what we also realized is that the world is going to video. People are slowly and steadily stopping reading stuff, and they're liking watching stuff. So that's when we found you.

Prateek: Absolutely! And we are taking full advantage of this.

Nithin: And, I've known you from the time of your being a

Market Scientist.

Prateek: God, it was like seven years now, at least, right, Nithin?

Nithin: Yeah. Your number on my phone is still saved as Market Scientist

Prateek: Please change it to LearnApp.

Nithin: But I think what you're doing is great. So the thing is, I think we all have the onus of making this country financially literate. Because you don't want products to be mis-sold. And then mis-sold people, they become inactive. As in, this country needs financialization. You want all this money sitting in FDs, savings bank accounts, current accounts, gold, real estate to come to the markets. Because if it comes to markets, it'll find entrepreneurs. If it goes to entrepreneurs, they will build great businesses. If they build great businesses, that will create wealth. You want that to happen, and that can happen only through financial literacy. Hopefully, we are all just getting started, and we will do a lot more

Prateek: And I realize this being in education, people want to learn but they can't because they don't trust people. Like you just said. So I think the biggest edge, just be honest. Like we've told so many people who are learning technical analysis, for example, and we say certain things just don't work. But I mean, if you want to learn it here, here it is, try it. Or go the Quant way and, and it really works. I think honesty really works, but talking about instinct Nithin, you said a lot of things you built on that were based on instinct. Was there anything that you just built on instinct, wasn't planned and then suddenly just did really well? Any overnight decisions or did that ever happen?

Nithin: I think the biggest one, probably after Aadhaar, the second biggest tipping point for the business was Kailash, a person who was heading PR and I was going to Cochin and the flight got delayed. We were sitting at the airport hotel having a beer. What was happening for our business was that everyone was looking at Zerodha as a place to go for speculative activities.

If you want to invest, go use a bank broker. If you want to do futures and options, use Zerodha. And by then we had realized that the number of people who trade options in this country is just maybe five lakhs. And we are like if you have to grow this business, we have built this for the larger audience. And this was 2015 and so what we did over the beer was, I said, why don't we just go zero brokerage on equity investing? Because we weren't making too much money. And that was a Friday evening, and on Saturday morning we announced, right. We put a blog post out, and there was no board to go get approval, nothing.

Prateek: Was it that quick? I mean, what about the tech behind, I mean, how did you do it.

Nithin: Going zero is the easiest thing to do. Your brokerage is now not 0.01 and Rs 20, it's just zero. I mean, it's, it's actually one of the easiest things to do. The only tech was our designer had to design a blog post landing page. That's it.

Prateek: You had that Rocketship, right? I remember it was this guy on a rocket ship.

Nithin: Yeah. So, that's probably the biggest tipping point for us as a business. Because until then, we were growing very slowly and then for the first time, because of this virality after that, a lot of people were like - who is this broker who is doing at zero. I mean, there's not a lot of distance between Rs 10, 20 and zero. We were charging Rs 20 a trade, but I think zero was eye candy.

And people were suddenly like this is great. And then we got a lot of press coverage. I think in 2016 for doing that thing and Economic Times put me in the top 10 businessmen to watch out for in 2016. And the craziest thing was, number one in that list was Mukesh Ambani for Jio, and number 2 was Nithin Kamath for Zerodha because we went 0 brokerage. I was like, damn, what the hell?

Prateek: The beer was this by the way that you were having when you came up with this idea?

Nithin: Yeah. So, as I said, that was, probably the most, positive impact instinct-based decision that we'd taken that worked really well.

Prateek: Yeah. The other thing that you guys talk a lot, you actually tweet about also is Rainmatter. So I obviously know what Rainmatter is, but why don't you tell everyone what it is and why did you build it? Was this one of the instinct things you came up with suddenly or was it very planned?

Nithin: As a business, we were trying to solve that one problem, which is building a great execution platform. As in, if someone has an idea to buy or sell a stock, we want it to be the best place in the country. That was what we were building. But then we realized that that audience for that product is very small. Today, there are probably just 70-80 lakh Indians who invest in the market once a year. So we knew that either we have to build it ourselves or we have to do something where we had to grow the market audience. We had to build a product which can cater to people who don't have an intent to buy or sell. So yeah, that's when we were also building Kite, which is our web app.

The great thing that our tech team did while building Kite was that they first built what is called a Kite Connect. So these are a bunch of APIs using which startups can come and build trading apps on top of us and Kite was one such app. So Kite Connect was what was built as a core product. And then on that kite Web and Kite Mobile were built. And then what we did in 2016 was we went, and we said - you know what startups, we have built this brokerage firm where we work at zero brokerage. We have built a great execution app, and there is no point coming and building another buy and sell window.

So we said if are you a startup who can build a niche experience, which can grow the capital market ecosystem in this country. And, that's when we met the first, and I think the best startup of the lot, which has done really well, smallcase. So smallcase was trying to build this whole idea of investing in a basket of stocks versus buying individual stocks. And it was a great way to introduce first-time investors to the market because the biggest mistake first-time investors do is take concentrated bets. They put a lot of money into one stock and smallcase as a product itself was diversifying risk for the customers. So we opened up the APIs, and we said, why don't we build on top of this? Now, the other problem for a lot of startups or anyone building a financial product is people don't trust it very easily.

So what we did as a business was we went to our customers and said, you know what? This is our product, we trust this. Why don't you use it and tell us what you think about it? So smallcase was able to very quickly get to the first 10,000 customers. I took two years to get to first 10,000 customers. These guys got it in like two, three months, they had like 10,000 customers. So, once that happened, more startups started coming in. So, then, there's this funny incident. So Kailash and I, we had gone to Cisco's cloud conference, and the person who was talking was the cloud chief. And I said jokingly; you know what, if he's his cloud chief, I want to be a Rainmaker. And then Kailash said if you want to be a Rainmaker and we're doing startups, you know, probably you should call the company as Rainmatter. So that's how that whole Rainmatter name came about.

But we also realised when we opened up these APIs in 2020 broking wasn’t hot. Today, you say FinTech, saving and investments people want to put money in. And back in 2016, it wasn't. People weren't looking at this as one of those sunrise industries. So we realised that these startups also needed some capital. So we took some of the money we made from the business, and we started investing in these startups to help them get the product from the idea to a live product. I think one of the most exciting things about this business and this whole journey of Zerodha for me has been Rainmatter and how I've been somehow, in some small part, been instrumental in building these standalone businesses.

So just to give you a few names:

  • smallcase has built a great thematic investing platform, and today they are doing a lot of other things. And so they've also built this platform called Tickertape, which is like a great stock discovery platform.

  • Sensibull has built an options trading platform.

  • Streak just have launched an amazing mobile app, and they are a backtesting platform for non-programmers like an algo trading platform, where even non-programmers can come in and create strategies and backtests, right?

  • Leanapp is like a great educational platform for us, it is an extension of Varsity in my head. You're using the same content in video form, making it a lot more engaging, getting in experts and kind of growing the capital market ecosystem.

So, for me personally, Rainmatter is almost like a CSR initiative. I'm hoping you'll also agree to it that, you know, it's never been about ROI.

Prateek: I totally agree. Yeah. I mean, in our experience, we've only got support and love from Rainmatter. And I think the first time we met also, the question was never how much are you going to make? What are you going to do? What's the equity like? It was always, how are you going to help a hundred thousand people? How are you adding more value to them? So I think that's really clear.

But Nithin, is it only finance? You guys recently did something around climate also right. So does Rainmatter only do finance, stuff? Or is it wider than that?

Nithin: So we've done spectacularly well as a business. I think we are probably one of the most profitable new-age businesses in this country. In the last 5, 10 years, if you were to look at startups that have done well, we're probably one of the best startups in terms of revenue and profitability.

And we've always wanted to do something to give back, while we are making investments and helping the capital market ecosystem grow. I think this is again, thanks to Kailash and being around him and his influence. He is one of those guys who kind of ingrained this idea in me that this planet is just on its way to disaster. Climate change is going to ruin it. I mean, what's the point of all this building businesses and making money and all of that If this planet is not gonna exist in the next 20, 30 years?. What if, global warming and all that? What if we have to go to another planet to live and stuff like that.

So yeah, we said is there a way that somehow we can contribute? So we started this thing called Rainmatter Climate, which is a climate fund. So we are investing in climate change startups. One of the problems we realised there for climate change startups is that no VCs and PEs are chasing that space because there's no money there. You're doing it more for impact, and there are not enough investors there. I mean, there are big guys like Gates Foundation and Nilekani Foundation, etc, but they kind of go after bigger startups. It's almost the same problem that we all face otherwise right. There is no one seeding these small little ideas.

So we thought there's an opportunity to go and provide seed capital. Give that 1-5 crores to a lot of small climate change startups. The second thing was, I love nature and I hate it when people are chopping trees. And we said there's probably some form of supporting these grassroots organizations to create these places where you can have sustainable agriculture, where there is an incentive to not chop a tree. So we're doing both of those, and we are investing in startups, and we are giving money to grassroots organizations who are promoting sustainable agriculture.

Prateek: This is really interesting. Did you ever think that you would go from like helping traders out to contributing to the climate and the environment? I mean, that's quite a jump.

Nithin: Yeah, I know like I said, there's a lot of luck. There's a lot of right places, right times. And, and I think what I've realized is that to do what feels right to you. If you're constantly trying to do something that is helping someone else, good things happen to you. Just put yourself in the right places where the odds of you hitting it also increases. If 10,000 people in their mind want something good to happen to Nithin because I did something good to them, your odds of good happening to you automatically goes up. And, and that's generally been that philosophy that I've had for awhile now and,

Prateek: Right, I mean, like all the good decisions or the interesting shots come out of gut instinct and not because of Excel calculations. But you sort of brought it to business, I guess. One last thing going back to Zerodha, as a brokerage business, you are the largest brokerage right now in the country. So, what's the next big thing that you really want to address?

Nithin: I think one of those things which is a sore point in this journey for me personally is to see our customers lose money when they're trading. And the fact that you can't really do anything about it. As in, we realized as a business, that advisory is not the right way to do it because you're not giving the stock tips etc. Because firstly, you need to teach people how to fish, not give that person fish. Because that's the way the person can survive. And there are no stock tips that work. Okay, so if I find you a stock tip that worked, I'd probably go buy that stock. Generally, people wouldn't be sharing right. So, that thing has been bugging not just me, like a bunch of us in the business saying, okay, we need to do more. Which is just building a great execution platform or all these educational initiatives is not enough. Maybe we need to find ways to help a customer become a better trader, and we've realized that our strength is tech and product, and maybe there's a way to do it using the product itself. So the next big thing for the businesses is actually this platform called Nudge that we're working on. This is inspired by Mr Richard Thaler's book Nudge, which is, can you build all of these small little nudges in your platform that gets people to drift towards good behaviour. The kind that moves people away from bad behavior.

So let me give an example. To trade in the markets and have a high chance of profiting, I think there are five or six very basic rules, right? Which is - one, don't go against the trend. If a stock is going up, don't sell. If it's going down, don't buy it. Okay, now, if you do go against the trend, you need to bet size. Which means if you're going against the trend, maybe buy half of what you would buy otherwise, because bet sizing is a very important aspect. Don't put all your eggs in one basket, which is don't put all your money into one stock, which is a very bad way of trading.

Know that there is something called disposition bias, which is this bias that gets you to sell your winners and buy more of your losers. You know, be aware of this, so stuff like this. I mean, these are some of the things that affect retail traders and which is one of the reasons why most people lose money in the market. It's not really the actual trading decision. It's not really the strategy of buying a certain stock. You know, you might have a great strategy, and your odds might be 60 to 40 versus tossing a coin, which is 50 to 50. So you could toss a coin, make money if you followed the basic fundamental rules of trading. And we said, can these rules be somehow incorporated within the platform?

Prateek: You mean, this is part of Kite?

Nithin: Nudge is almost like a layer on top of Kite. Think of it like Siri on the iPhone. It’s just a layer. So for example, we introduced one Nudge this year when there was a sudden rush of new account openings that happened in March, April and we realised that penny stock transactions went up. And so we quickly brought this penny stock nudge into play. So today on Zerodha, if you want to buy a penny stock, the order window says, boss, do you know that if you buy this, you could lose all your money. So we scare the shit out of the customer.

Prateek: I don't think any broker would do that. That's interesting.

Nithin: Yeah. And then he can always override it, but if he wants to override it and buy it, we ask him for a TOTP. That means he has to install the OTP authenticator and enter it here. So we are slowing him down. And what we realize is that our penny stock volumes, as a percentage of overall volumes, are down 60, 70% after this. And so we are probably helping a lot of our customers save money by putting the nudge in place. So similarly, can you put these nudges around whatever rules are set. This is something that we're working on right now. And I think of all the brokers in the world we can do it because we don't have revenue targets because every Nudge will reduce your trading size. It'll never increase the trading size. We’re never going to Nudge them to say buy more.

We'll always Nudge them to say, don't do it or do less. Which means it is revenue negative for the company and a company that is chasing revenue that won't be able to.

Prateek: This is not even education, right? I mean, this is like a behavior change. And that's what the goal of education actually is; it’s actually to change behaviour. But if we can do it on the spot, I guess, so that that's a good name. It's nudging you to good habits for good behavior. And like you said, you can be right 99 times out of a hundred, but one trade can blow your entire account, and this nudge will probably prevent you from doing stuff like that. Is that the idea?

Nithin: That's the ambition. I mean, let's see how well that plays out because we can't block out a customer. So there'll always be an option to override. We just have to find a way to Nudge the customer into not overriding those basic rules that are required to trade and make money in the market. And to be very honest, if you look around people who lose money, they don't lose money because of their trading strategies. It's not the buy and sells, it's actually everything else. And a lot of these everything else's can be controlled programmatically. So that's the next big thing for the business, and that's the thing I’m most excited about now.

Prateek: When do you think it's going to be out? Can you answer that question?

Nithin: Well, I mean, I've stopped giving timelines. But the penny stock thing is in play. So there was just a really big architectural change that was required to put all the other Nudges. So I'm hoping that over the next two, three months, we should have the majority of this Nudges in place.

Prateek: Interesting. Thanks so much, Nithin. I think I'm looking forward to the rest of the series and going deep into each product, et cetera. so thank you so much.

Nithin: Thanks. Thanks

Links to the various products and platforms discussed in the video: 

Learn more about all our products and platforms:


Learn about investing and trading:


Ask any doubts you have about the stock market:


Invest in Ideas:


Options trading simplified:


Learn about the market from the best in the business:


Create, backtest, and deploy your trading strategies with no coding:


Investing in bonds made easy:


Tax filing when trading and investing made easy:


Financial news made easy: