Big savings with zero brokerage

We first decided to waive brokerage for equity delivery in December 2015. Until then, we charged the lower of 0.1% or Rs 20. This move was to change our image from a broker just for speculation, which was the case back then. A lot of people (sometimes even I) wondered if this would just be a short-term experiment or if we could go on like this forever. Well, it’s almost 10 years since and even though there is some pressure with the options business going down significantly in the last 6 months, we have been able to continue offering Zero brokerage.

By the way, Zerodha = Zero + Rodha (barriers in Sanskrit) and not Zero + brokerage that many think. Like I said earlier, we were Zerodha for 5 years before we went Zero on delivery brokerage. 🙂

So we were calculating the brokerage savings for our customers in the last 9 years. What if we charged our normal rate of 0.1% or Rs 20 or the market rates of 0.1% or 0.3% without a cap?

The savings are anywhere between a whopping Rs 2000 crores to Rs 20000 crores.

Why how much you pay as brokerage matters?

One of the biggest mistakes both investors and traders make is ignoring the significance of costs to their overall returns. What they fail to realise is that costs are one of the biggest drags on realised returns. This ignorance of costs is because of percentage blindness — a brokerage of 0.5% seems small so most people tend to ignore it. The irony is most people don’t even make enough to recover their trading costs.

If your strategy involves just a few transactions a month, the costs quickly add up. Costs are the first hurdle to profitability. So, being conscious of costs can easily increase the odds of your profitability by a non-trivial margin.

I’m a big proponent of low-cost ETFs and index funds, so much so that the Zerodha AMC is especially focused on these products. But what boggles my mind is that a decent number of investors know the benefits of low-cost ETFs but still pay up to a 0.5 % brokerage. This is just percentage blindness in action. The whole point of ETFs is to save costs, but the brokerage on such transactions is already 1-5x the expense ratio of these ETFs!

So keep an eye on your costs!

Happy investing,