When one has a HUGE trading account, then many tend to gravitate towards the bigger brands. Why? Because there is a perception of safety. I have seen this happen many times before that anyone with an amount over and above 60-70 Lacs goes with a broker that has a "Name" and has "Branches" all over the country. I guess it makes them feel like "If I have any problem, I can walk up to the branch and confront him." OR "Oh, they are so big maybe their systems are better than a discount broker." All this is far from the truth.
- Firstly, discount brokers don't chase large accounts because they don't have any incentive to do so. We charge a flat fee. Hence, we earn the same revenue per trade from someone that has 50,000 in his account and from a client that has 50 lacs. So, they think the effort of onboarding large clients is not particularly lucrative. This, however, doesn't mean that the platform is not suitable for large traders. In fact, if you are an active trader, you should choose a broker that focuses on the platform and charges a fixed fee because they are not trying to milk you by generating additional brokerage or giving you unsolicited advice that can wreck your trading account. I have seen this happen FAR TOO OFTEN at traditional brokerages. Sell-Side trading advice for which there is no additional fee has to be avoided at any cost because is a direct conflict of interest.
- Try to avoid brokerages that do proprietary trading regardless of whether it is a traditional or discount brokerage. I think 99 percent of the retail traders are not aware that for far too long, brokers have been utilizing client funds to trade in their own proprietary accounts. Yes! You read that right. Many stockbrokers use clients' funds to trade on their own books and try to generate profits without having to put up their own capital. How is this even allowed by the exchange or regulator? It is not but it happens. Broking is a secondary source of income and the primary is, of course, prop-trading! Needless to say just because a broker trades doesn't mean that they will always be in profits. They can lose money too and when that happens, they're essentially losing clients' money without you ever getting to know. Don't ask me the details, it's more complicated than I can explain in this post but I just thought I should throw light on this aspect because I care about retail traders. Whenever there is a conflict of interest of this kind, misappropriation of funds is a very high possibility. To eradicate the conflict of interest, FYERS did not even apply for a prop trading license. So, the funds are much much safer because we don't do any speculative activities at all. So there will never be any reason to divert funds in the first place. Some classic high profile blow-outs due to diversion of client funds were Karvy and IL&FS. There are many others that don't get enough attention. I'm not saying every broker with prop-trading activities misuses funds. I don't have sufficient information about that but I am just pointing towards a direction to help understand the possibilities.
- Avoid brokerages that provide very high leverage. It can blow-out your account faster than in your worst nightmare. Some brokers will offer margin funding etc. but please note that margin funding is risky and has resulted in way too many issues. In the future, the margin funding segment may not exist as we know it today. The rules are changing and perhaps the 2x leverage maximum will become the norm and that too through an NBFC.
- Don't be penny-wise & pound-foolish. A brokerage is a business at the end of the day. Yes, minimal fees help but not at the cost of compromising your capital, right? So don't let the brokerage fees be the most important factor when choosing a broker. Choose a broker whose bread & butter is the business of broking and who is straightforward. If you end up in the wrong hands, then god bless your funds and how it will be handled.
If your account is larger than say 10-20 Crores, you can approach the Domestic Institutional brokers. Although many of them have a 50 Cr. minimum requirement, they may not turn down business. I hope this makes sense. Please choose wisely.
All the best!