Transcript
Speaker: If I have a portfolio, should I sell or should I hold? Should I stay or should I double down? These are the consumer problems that people have. And sometimes people jump off the roller coaster at the wrong moment. You know, this sounds a lot to people who are addicted to gambling. It's a very simple strategy. You just have to... keep investing on a regular basis. Nearly 9 out of 10 small traders in India lose money. Dale Vaz wanted to change that. So he built Sahi, a trading app that helps individual investors make better decisions and know when to stop. Today, Sahi is amongst India's fastest growing trading apps, empowering users with AI. On this episode of Founder Thesis, Dale joins Akshay to talk about why so many people lose money trading, how he built Sahi and what it takes to put investors first. Imagine an FY driver. The driver is the investor or the trader. AI is like the race engineer who's whispering into the ear. It seems like a solved space. What made you want to take this kind of a bet?
Speaker: ah Dale Vaz, you are the founder and CEO of Sahi. Welcome to the Founder Thesis Podcast. Hey, Akshay. Nice to be here. It's great to be on this podcast. um So, Dale, ah you know I haven't had... the uh,
Speaker: It... too many conversations about uh equity trading or the the whole ah I mean, I've had a lot of conversations with companies in the wealth space, but most of them are...
Speaker: Not direct trading, but rather like mutual fund aggregators, like say a Scriptbox or a Deserve or those kind of businesses. I've done a bunch of those. ah So you know I'm curious to learn about...
Speaker: When a person is directly investing in equity, what uh, are the mechanics of it. ah Take me through what happens when I... buy a stock let's say i buy a stock of swiggy your erstwhile employer what's happening there ah Is my money.
Speaker: Going. to Swiggy directly or is it? but Like, what what's what's going on in the background? Awesome. Awesome. Cool. So let's do a quick maybe few minute breakthrough of the entire space. And it's a pretty interesting space because I think In India, over time regulators have really made the entire process very robust.
Speaker: So there's a lot. to unpack here. ah So let's go into ah bits and pieces. The first thing is the money, right? So before you buy a stock, You have to first move your money into...
Speaker: a broker's account. So that's typically what people do. We go and we add maybe 10 ,000 rupees, 20 ,000 rupees, 1 lakh. to our broker account. So when we do that, what happens in the background is the money moves from your bank.
Speaker: into an account that is held in your name. So the interesting bit is while the money is sitting within the broker ecosystem, it is actually linked to the customer's account.
Speaker: So that's the first piece. and once you have your money in the account now you go to your broking app you open your app and you say Let me buy a stock Swiggy, Zomato. um any of your favorite stocks. And when you buy that stock, you typically will say, okay, I'm going to...
Speaker: maybe put some money down, maybe I'm buying one lakh rupees worth of stock. So then The second piece is where this is an order that goes to what is called the exchange, which is where NSE and BSE come in.
Speaker: So the first thing in this process is, can we find somebody who is ready? to sell the stock to you. And that's what happens at the exchange. The exchange is basically nothing but an order matching engine.
Speaker: This matches the orders that comes in from different customers across India and tries to find the best fit between the person who wants to buy and the person who wants to sell. So every time I want to buy a stock, There has to be somebody on the other end who has to also sell me that stock.
Speaker: If there's no seller, then I cannot buy. Because nobody is... you know, essentially giving me that offer unless there is an counterparty unless there's somebody else on the other end.
Speaker: So typically in this market that we have, there are a lot of players. There are millions of players. that are retail individuals that are also foreign investors and then of course there are prop traders.
Speaker: and so between all of them there's sufficient orders in the space we call that liquidity So liquidity means that do we have enough people buying and selling. And now if I want to buy one lakh rupees worth of Swiggy stocks.
Speaker: My order goes to the exchange. In the exchange, there is already a bunch of orders that are pending hopefully for people who also want to sell. A Swiggy Stock. And then what the exchange does, it matches. It finds the best price for me.
Speaker: And it basically connects and says, great. You want to buy... I found a seller. Let me match you two together. And let me notify both of you guys. that your transactions have been matched.
Speaker: And that's what... We see when we see the message on the app saying order executed, or we see a message saying, you know, your position has been created. At this point, all we have is the exchange telling us that there is a commitment.
Speaker: that we have found. a corresponding seller for you. So in my broking app at this point now, I can see, okay, great, I've got... ah one lakh rupees worth of um Swiggy shares.
Speaker: Secondly, you also see that the balance that you had, the cash balance that you had placed in the morning has gone down the one lakh rupees, which obviously means that the one lakh rupees has... moved away and now you've got one lakh rupees worth of stocks So that's the process in the morning. Does now does the seller see one lakh? in his account also instantly So,
Speaker: um No. Interestingly, there is a difference there. There is something called a settlement window. We'll come to that. ah But today, if I'm a seller, I don't see the money right away.
Speaker: in my account i just see that i have sold the stock And when I sell the stock, there is a commitment that I will get the money. Now in India, you get the money in the T plus one day. T plus one means if I've sold today, I get it on the next business day.
Speaker: So my my money in the balance will only update. next day. And that's what happens. After the market closes the interesting bit is in in the stock business what we as users and traders use is probably the simplest problem in the entire picture Because what we are basically doing is buying and selling and it's very simple. We use the app and we send the order to the exchange.
Speaker: And then the exchange says, great. But after we are done, after the market closes, which is say roughly around 3 .30 and now even 3 .40 PM. That's when a lot of work happens in the background and that's when our operations teams get into action. And every broker has these teams who are essentially trying to make sure that now that we've finished the trade,
Speaker: How do we physically move the money and the stock between these? buyers and sellers. So here again, two more concepts which... are very unique to India One is the concept of a depository.
Speaker: A depository is like a bank. but a bank for where your stocks are held. ah right So in the US, for example, if you were trading, your stocks will be held by the broker.
Speaker: So if I'm trading on Robinhood, robin hood actually owns my stock so if i need my stocks or if I need to move my stocks, I have to go to Robinhood and I have to move them to another broker.
Speaker: ah But in India, we have this concept of a depository, which is like a third party. essentially a bank. for all your stocks. And this is a regulated entity. So this is not belonging to any...
Speaker: um broker or any private company. This is some somebody that is essentially built. to provide that safety to the entire ecosystem. So when you... NPCI kind of a body? like like the yeah It's called... um it's called ah NSDL and there are two entities there is something called nsdl national security is depository limited and then there is CDSL.
Speaker: Now both of these are two different entities, but both provide the same capability where ah you can essentially store people's a record of all the holdings and all the stocks that they own.
Speaker: So anytime somebody buys a stock There is an entry made in one of these systems. And now you as a user tomorrow can go to that system directly to get access to all your holdings.
Speaker: So the beautiful thing of this is that tomorrow, even if the broker goes... Bankrupt. or even if the broker disappears. your stocks are still very much safe. they are sitting with the depository and you have access to directly go to them and say Give me all the stocks I have and they will be able to give you a nice, beautiful report.
Speaker: that tells you exactly what stocks you have. um And again, you could be having accounts on multiple brokers. You could be having accounts on four, five. different brokers.
Speaker: All of the stocks that you're buying on each of these accounts will still be associated in that single depository account you have. So you don't have to worry about trying to make sure that you are tracking your stocks across each broker.
Speaker: you can have them all available in this single depository. And what's the identifier? It's like phone number or Aadhaar? It's a pun. Your PAN number is your identifier. When you sign up for a DMAT account, you provide your PAN number. and everything gets linked with your PAN.
Speaker: okay And if you ah if you've seen, in fact, these days, you also get an automatic email. It's called a CAS. statement. a consolidated account statement.
Speaker: and So that many people must be getting an email which comes directly from one of these depositories, either NSDL or CDSL. ah And this email will show you in a single glance all the holdings you have.
Speaker: irrespective of which broker you bought them from. You would do this only if you were changing to another broker who is using... Yes. NSDL. Or CDSL, right. like Okay. So if you...
Speaker: and That's right. So if you when you when you sign up on the broker, I think one thing important to understand is which depository they use. Because, for example, if you are using a broker that uses depository one.
Speaker: And now you sign up for a broker that uses depository too. you won't automatically be able to get access to all your stocks. you It's like creating two separate bank accounts. you know It's like almost like saying I have a bank account in HDFC, I have a bank account in ICICI.
Speaker: These are two separate accounts. It'll be easier to sell everything and buy again, probably. it's easier to transfer between the broker accounts.
Speaker: ah So the seller receives money one day later. Yeah, so I'll talk about the the money part, right? so akto You have the... um the deposit. So let's say today if I am trying to buy Swiggy Stock. The first...
Speaker: thing has to be done is I have to get the Swiggy stock into my depository account. Somebody has to make an entry just like a bank entry saying, hey, Dale now owns one lakh of. Swiggy stock. So that's one action.
Speaker: Now, the second action is the money has to also move. Now for the money, there's actually a separate entity that is also created by the regulators. Call the clearing. house.
Speaker: The clearinghouse is basically the... the bank That. tracks all the cash balances that people have provided into their broking accounts.
Speaker: So here again, it's a beautiful thing. It's it's something designed to keep... um People's money is safe. because most people don't know this but today when you add money to your broker account, the broker doesn't get to keep the money.
Speaker: um It used to be so many years back that the broker actually had access to customers' money and some brokers also. ah We've heard of cases where you know they have misused that access.
Speaker: But all this has changed with regulations coming in and with some nice innovations coming in. We now have this clearing. uh house which basically is like a separate bank.
Speaker: that tracks the money that every individual person has at every individual broker. ah level. so if i have added 1 lakh to my sahi account and i've added one lakh to my Zerodha account.
Speaker: There will be two entries in this Clearing Commission which says This user This broker has 1 lakh rupees. And so at any point in time the money is directly tied to the individual user account not to the broker.
Speaker: and But... ah Does the money ah sit in your account? Like, can you earn interest on it? No, so this is the difference. It used to be that there was a construct called a pool account.
Speaker: where all the money that people were putting were put into a common account which was basically the broker's account and that was called the pool account. And that pool account is where people could... essentially as a broker, earn money.
Speaker: So if everybody puts one lakh rupees and just um adds it to their broker account. I could take all that money, I could make a fixed deposit of it, and I can earn interest on it. now that's changed now on a daily basis as a broker we have to make sure end of day we upload or upstream all the money. into the customer's account.
Speaker: So let's say through the day people are making UPI ah transactions, people are making net banking transactions, right? And and they are adding money to their broking account. So at the end of the day, there is a process that runs that essentially tracks how much money the user has added.
Speaker: how much money they have spent in terms of investing or in terms of trading, and the remaining money that is left. is immediately upstream through our net banking interaction directly into the clearing commission. So we essentially go and say, okay, this much is the money that the user has left over.
Speaker: And we are transferring that money into the Um, a clearing house. Now, This happens on a daily basis. This is also unique to India? Yes, this is also unique to India. This is something which is very cool because here The money doesn't sit with the broker.
Speaker: On a daily basis, our teams, our operation teams and every broker operation teams. is required to ensure that before end of day the books are settled.
Speaker: ah which is which is really, you know, for me was a big discovery because from the outside, you've heard all these different things about scams and this and that.
Speaker: But really over the last few years, what the regulators have done, what SEBI has done is something quite remarkable where they have designed the system to be almost Foolproof, in a way.
Speaker: which takes away a lot of the disproportionate control that individual brokers have. Both on your stocks? and on your money. In both cases, they have extracted that into these third -party systems that are now responsible for owning that.
Speaker: and they put the responsibility on the broker to make sure on a daily basis we are Settling and closing the books. So that's great for the customer because now you know and that tomorrow if anything happens, I can directly go to the clearinghouse and say,
Speaker: Hey, this money is something that is my money. Can I get it? Or I can go to the depository and I can directly say, my stocks are with you. Can I get them? I don't have to necessarily wait on the broker to Help me. I don't have to even wait on them for even giving me this.
Speaker: um And that's that's what's like you know really interesting about this infrastructure that we have in India. Yeah, it's very cool. Cool. So then let's... now Now we have these two entities. We've talked about these two entities. One is depository for stocks and one is the clearinghouse for money.
Speaker: So now whenever somebody is trying to buy something, First thing they need to make sure they have enough money in their account, which is then in the clearinghouse. And when somebody is trying to sell something, they need to make sure that they have the stock available in their depository account.
Speaker: And now when... The transaction is... completed with the exchange sales, I found Seller A And I found a buyer B and I have matched their orders. Now this record. is what it gets executed after market hours, which means now there are two transactions done.
Speaker: there is a transaction of money moved from the sellers. ah Sorry, from the buyers. clearing account to the seller's clearing account. As you can imagine, I need to get money. I don't get money into my bank. I get money moved into my broking accounts.
Speaker: ah clearing account so that transaction happens Separately there is a entry made from the seller's depository account to the buyer's deposit account. so seller the pod account may we'll say negative 100 stocks sold.
Speaker: in the buyer's depository account ma plus 100 stocks sold. This process is a little more involved because um as you can imagine, um there is a lot of brokers involved. So in the system and you may be on a different broker, I may be on a different broker.
Speaker: So there is actually a lot more complexity which I won't go into. but the meta point here is that there is these two transactions that happen at the user level which is money moving out and stocks moving in.
Speaker: And then next day. when you log back into your broking app. you now see... essentially either a holding, which is which means that you now have the stock in your depository account.
Speaker: or If you're a seller, you will now see your balance. increased with the cash that you got from selling the stock. Okay. What if ah the order that you're buying needs multiple sellers because it's a high value order? then the Broking app will...
Speaker: do the like like, The exchange will do the matching. and ah yeah Yeah, so that's a great point. great point In fact, there's a we can almost like peeling the onion here. So I love them.
Speaker: ah conversation because when you look at the customer it's an order for me so i say i want to buy Maybe I have a lot of money. I say I want to buy 100 ,000. stocks of swiggy Right. So it's an order. So for me, it's a single order. Now what happens, it actually gets broken down into something called trades.
Speaker: And a trade is essentially the individual bits of the order that get matched to individual. as a people. So, to your point, there may be 10... people who have to all essentially sell a bit of their stocks to contribute up to my total one hundred thousand so when i look at the exchange the exchange is doing trade matching Exchange does not do order matching.
Speaker: Hmm. We give the orders to the exchange. The exchange looks at the order, sees the quantity and then tries to find individual people who can fit. parts of that quantity.
Speaker: And maybe it's one order gets fit to one single person or maybe they have to break it down into five trades and find five different sellers for each of the individual trade. So at the end of the day, then the individual trade gets matched to a unique person on both sides.
Speaker: ah And can you also do fractional equity buying? No. no no in in india we cannot do fractional because there's actually ah a company's act there's a law that requires a share to be an indivisible unit.
Speaker: ah So this is something that by law, people cannot sell equity that is less than one unit. ah which is also something that prevents fractional. now ah Obviously, either the law has to be changed.
Speaker: or there is a separate construct. that ah brokers in the US have manufactured. uh you know what they do is they basically buy the stock And then they create these fractions on their end and they sell the fractions.
Speaker: but they are responsible to ensure that from a Oh man. From a stock perspective, they are dealing in units. So it could be like Robinhood says, I'll buy 100 stocks of Nvidia.
Speaker: And then I'll make it, I'll convert 100 stocks into 10 ,000 fractions. and I'll sell 10 ,000 fractions to my users. so That's a separate solution they have. um In India though, it is still a single unit.
Speaker: How does... a broker earned from this trade Yeah. So, there are two models that have. kind of become market standard. And this is almost now based on...
Speaker: certain old school, new school. a model. one what we call the old school model which is a more traditional brokerage model is to take a percentage of the value that you are trading.
Speaker: Let's say if I'm trying to buy one lakh rupees worth of... Stocks. as a broker I may say I'll take 0 .1 % of that 1 lakh rupees as my commission.
Speaker: And that's how I make money. So every time you buy based on the total value of what you're buying. I take a small commission. um And there, of course, you know the um As you can see, the problem is that as your amount of ah Value goes up. the brokerage that you pay is also proportionately higher.
Speaker: On the other side, you have what we call the discount brokers. Discount brokers are mostly the online brokers. where most people have moved to a model of fixed. price irrespective of value.
Speaker: So irrespective of how much you... buy you will pay say 10 rupees or 20 rupees now In the case of many brokers, it is 20 rupees ah In the case of Sahi, it is 10 rupees.
Speaker: but essentially it's a fixed price. and there irrespective of the size of the of the order every broker gets per transaction. These are the two models out there. Why did you make it 10 rupees and not 20 when that is the market rate?
Speaker: Are there others theres also at 10 rupees or is the market rate? More or less 20. No, the market standard is mostly 20. And this is something, it's an interesting question. um it's It's almost a philosophy that...
Speaker: I have picked up from my time at Amazon back when I was in the US and I joined Amazon very early in 2007. So at that time, it was a small company we were still competing against.
Speaker: Twice R Us and Best Buy. Circuit City. Many of these companies have become bankrupt, by the way. But back in the day, they were really large. grocery and electronics and bookstores.
Speaker: And one of the things that um I learned and Jeff used to say about say is that Can we provide... a superior customer experience. at an unbeatable value.
Speaker: And that's essentially what Amazon did, right? It focused on saying, can I give you best in class product experience service, but do it in a way where it is cheaper than the rest. um and And he had this line saying, you know it needs to be so good.
Speaker: that somebody has to be financially irresponsible to not choose Amazon. Wow. Okay. yeah Amazing. Like if you're getting the best quality service. for a great price, why wouldn't you take it?
Speaker: Right. And that's something that has stuck with me. And I think that's where people make these kind of choices where it was like either you provide great quality, but you charge more or you provide. like cheap quality and you charge less.
Speaker: And I think... That's not necessarily how it should be. I think you have to figure out how to can I give both. Because a customer in my head is somebody who's looking for a great product experience, great trading experience, best in class.
Speaker: platform stability. At the same time, if you tell them that you can get all of this while saving 50 % on your brokerage, Why wouldn't they be happy? So for us, we started with that mental model saying, how do we get to that world where we provide a great product experience at an unbeatable value?
Speaker: And the way we've done this at Sahih is we've said, let's look at how to squeeze cost out of our... in our system. So rather than have, for example, a very large team and have a very large headcount and then transfer that cost to customers. We have a very small team at Sahi. We literally started the company with less than 10 engineers.
Speaker: and we built out the entire broking product including our own technology stack. with those 10 engineers. Even now, when we look at the total team, which is operations, customer support, product growth, tech. It's about 80 people that we have in the team.
Speaker: And... Our mental model is can we use AI, can we use some of the tools available to be able to automate our internal book So that we can save this. cost.
Speaker: and pass this cost on as savings to... customers And... hence achieve this vision of providing a super product that unbeatable value. Hmm. Amazing.
Speaker: I remember... way back Zerodha's promise was zero. like you know you don't have to pay anything for a trade do you have any such free uh offering We provide right now a free brokerage offer for users so for example today if you join sahi for the first 30 days
Speaker: Every transaction you do is free from a brokerage perspective. So anything you do, either intraday or if you do stock investments, we ah give it for free. That's unlimited. for the first 30 days.
Speaker: Okay. So help me understand ah these products. So now a broker is not just somebody who's executing trades for you you. You mentioned Intraday and you know there are a bunch of other products also that are... broker is earning from. ah Can you take me through those products?
Speaker: Yeah, yeah, so um So what we call them ah segments. uh or you can even think of them as different categories so if you um Think of these, ah there are essentially different types of investors and traders.
Speaker: um Some people, as we initially talked about, are people who we would call the passive investor. Passive investor is very simple. i want to buy a stock I just want to hold it for... Next 20 years, I don't... think I want to ever sell.
Speaker: So let me just buy it. right And that's the person who today... I would say majority of our users in India are where we are largely just buying either a stock or maybe we have...
Speaker: and SIP running in a mutual fund. And that's one kind of user base. Then you have people who are what we call the active investors. You also do mutual fund.
Speaker: we We don't have mutual fund right now, but we have something called ETFs, exchange traded funds. ETFs are like mutual funds. um The benefit of ETF is the... uh management fee of an ETF is very less compared to a mutual fund.
Speaker: So, for example, if you are buying Nifty. and you want to be able to buy a simple, nifty... related fund. a nifty ETF will be a lot cheaper than a nifty mutual fund because the annual management fee of the etf is less So this is actually a a great strategy that was highlighted and made popular by Vanguard in the US.
Speaker: ah So the founder of Vanguard himself was a big... proponent of ETFs. And the idea was very simple that if you are trying to build a passive income with long -term focus then you want to keep your costs down.
Speaker: You basically just need to be able to find something that is mapping to the market. and just keep investing with the lead lowest cost. So he promoted ETFs where you could buy, say, the index, the nifty ETF, or you can buy ETF related to gold.
Speaker: or an ETF specifically focused on IT or defense. And essentially there, the all that ETF does, It tries to track performance against the respective index.
Speaker: And it's a very simple strategy. You don't need to overthink it. You just have to... keep investing on a regular basis. There's no active manager. near yeah Yeah, there's no active manager here. It is essentially If the index has 50 stocks, your ETF will have the same 50 stocks. that's in the same proportion same proportion so from a user perspective if you like a certain say, a segment. Let's say you like Defense.
Speaker: And there are these 50 stocks that are tracked in a defense index. You can get an ETF that basically allows you to buy that. So you buy that, or if you like... it I mean, ETF also allows you to buy gold. There are gold ETFs.
Speaker: ah which you know people who are interested in things that are not related to the market so there are these different etfs and each of these are essentially very passive very low of volatility products designed for people who want to build.
Speaker: That belt. slowly. ah The good benefit is there is very little expense ratio. so your keeping more of the money that you make. What you're saying is that index investing is the best way to invest, and I understand that. but ah Why is an index mutual fund and an index ETF? not at the same cost.
Speaker: what is the difference because ah if i buy a nifty mutual fund by whatever say birla Whatever. Um, why is that costlier than buying an etf which is also a nifty etf It's so it's the um um i think it's the nature of the business in one case etf is intended to be simply a tracking product. When you see a tracking product,
Speaker: it is almost like a hands -free product where it's simply every day it tries to match The end of day. value of the index And who's the manufacturer of an ETF? Is it a fund house only like a mutual fund house only? Yeah, the same fund houses. So you'll find ETFs from Nippon, you'll find ETFs from...
Speaker: Kotak. you'll find ETFs from Motil also. The same people who have mutual funds also have ETFs. So they they provide both these products. The way I would look at it is that one product is something that is simply tracking the market, which means it is trying to essentially keep...
Speaker: the variation as low as possible. The other product is a little more actively managed. No, but a nifty... that like a mutual fund which is just tracking nifty is that possible or those are called etfs na need know people also have mutual funds that are there those may be the key difference is you have a fund manager who is um now um responsible for that fund.
Speaker: There are obviously... um um Each fund. when they create a fund, let's say they create a mutual fund for Nifty. There's something called a prospectus that they define. They define the rules that ah by which this fund will be managed.
Speaker: Now, in that rule, they may also have certain conditions saying, you know while it is tracking the nifty, we may also decide to keep some amount of cash. Separately. up to 5%. um So there are these rules that the manager still applies. In that case, the manager is applying their judgment.
Speaker: is using their skill and experience. And based on that, you know you end up paying a certain premium for a mutual fund A nifty will just, ETF will basically just follow the index. So in this case, if the index falls, it will buy. If the index rises, it will buy.
Speaker: Here you may have some flexibility, you may have some amount of judgment that the ah fund manager puts in. And these are separate instruments, like when you buy a mutual fund. That is, I believe you're buying it directly from the fund house, like say a Kotak. will sell you the unit of the mutual fund whereas an etf you're buying from a seller somebody who already owns that ETF like a retail investor.
Speaker: right So ETFs are actually bought and sold directly on the exchange. So they are just like stocks. There's somebody buying it and somebody selling it, just like we talked about. Mutual fund, you're right, mutual fund units are going through the fund house.
Speaker: um And. ah yeah it Basically, it sits in your... uh account now Mutual funds also ah recently or you know yeah they've made it such that mutual funds can also be sitting in the same depository account that you have. what we call the DMAT. account so just like your stocks and your etfs your mutual funds also are entered into the same account And now you can track all of them together.
Speaker: um and yeah it's it's It's a different product. um from a customer perspective. Um, but They can function very similarly if people are thinking about them.
Speaker: based on how they think about them. I imagine an ETF would be created differently like an etf creation would be like you pull in 100 crores And by... The nifty.
Speaker: as it exists on that day and then that 100 crores is unitized or fractionalized or whatever term you want to use it into individual. ETF units. And then that is the...
Speaker: Total circulation in the market is that 100 crore only, which of course will appreciate, depreciate, whatever. is Am I right? in that understanding um yes so there are yeah so okay like little more complex is There are units that are created that track a certain index, you're right.
Speaker: And the units are fixed also, as you were saying. um A side effect of that is sometimes there is a mismatch in demand and supply. No, this is... okay This is a variant. Interesting one. but There's an ETF, for example, ah which was related to NASDAQ.
Speaker: So a lot of people in India wanted to invest in Nasdaq. which is the U .S. stock market. ah But you can't do it directly unless you have a gift city account or ah unless you have an international account.
Speaker: and So the alternative is that there are these ETFs that are provided by Indian fund houses that track the NASDAQ. um And so you can invest in a XYZ.
Speaker: ETF. that basically tracks the nasdaq 100. And that's the way where you get exposure. So as the NASDAQ grows, your ETF also grows. But because of what you said, because the ETFs are in some sense, you unitized and the number of supply is fixed.
Speaker: There is actually a case where if more people want to buy the Nasdaq. and they are interested in buying the ETF. The price of the ETF may go higher. than the price of the underlying units.
Speaker: So there was a time in India where the NASDAQ ETFs had what is called a premium or a higher price compared to the value of the holdings that they were tracking.
Speaker: And this was purely because more people wanted to invest in the Nasdaq in India and they didn't have access. So they kept buying. more ETFs and obviously when you're buying and selling if there are more buyers and less sellers the price goes up.
Speaker: I assume very quickly other players would have seen this and come in with their own offerings and it would have... at least an Equilibrium again. Yes and no. The arbitrage...
Speaker: existed for a longer time because there was also a constraint that was applied on how much of money could be invested in international. Edith. there is actually a ah limit and this is more at the ah rbi level if i understand correctly where ah because we wanted to also ensure there's not a lot of money flowing out of the country.
Speaker: ah We also have a limit on the maximum amount of such investable international the The number and i'm I may be wrong, but it is...
Speaker: I think closer to 7 billion is what I remember. I'll have to go and check that number. Rupee or dollar? billion dollars. Okay. $7 billion, dollars right? So the idea is that if all the ETFs combined, the value of the amount invested in them cannot be above it.
Speaker: So with that constraint, you can't even introduce new products. In fact, for the longest time, many of the fund houses were not able to take new SIPs.
Speaker: um because they hit that limit. and not just fund house but the total market hit that limit where we had reached that limit and hence people could not even invest more into this.
Speaker: So when you have that you also have an artificial constraint on how many more players can come in and how much more supply can be generated. Right. Okay. Fascinating. This is so fascinating. yeah Yeah, it's a whole tangent. But a lot of these tangents in the market. Yeah, okay. Okay, so let's come back to segments. We were speaking of passive investors as segment one, which is a buy and hold investor.
Speaker: Yeah. And then you have the second segment, which is somebody called the active stock. investor. so active stock investor is someone who is focused on saying i want to build a portfolio.
Speaker: But my big difference is I am okay with selling. rather than holding. That's the simple difference. right Somebody who is selling a stock is in my definition, inactive.
Speaker: stock investor now they may not think of themselves as an active person they may say i just sell once in a while but the fact that you are even thinking when to exit makes you somebody who is active.
Speaker: Because the key difference here is that It's almost a mindset difference. There are like people who think that... Long term. everything will be fine and compounding will take care of stuff.
Speaker: so in that case they don't worry about short -term moves. And that's the passive investor. And then there are people who are trying to figure out, okay, how do I make a little extra?
Speaker: um The market is like a roller coaster. I keep giving this example. ah In a roller coaster, it goes up. and then it goes down. And then it goes up and then it goes down and eventually it ends. Now, hopefully it ends in a good place and people come out of the roller coaster laughing and smiling.
Speaker: but that But the journey of going up and down. It's where many people sometimes lose confidence. And sometimes people jump off the roller coaster at the wrong moment.
Speaker: because they get tired of these up moves and down moves. um In India, for example, since COVID, we've basically only seen the up move of the roller coaster, right? We've gone up. on a beautiful ride. And since 2020,
Speaker: most people would be looking at their portfolio and saying we are net positive. But the reality is, if you look a little bigger in terms of timeframe, you look at even countries like China.
Speaker: what happened from 2010 to 2019. um they pretty much had nine years of negative returns. ah If you look at what happened in US after the 2001 ah the .com ah Bust.
Speaker: For nine years, Amazon stock. did not hit the value it was during 2000. So for nine years, if you were an amazon .com investor, you would have been net negative or loss.
Speaker: in your thing so that roller coaster down move can also be a very long Don't move. So the idea of this is that some people are okay with saying let me just sit through this entire ride and then when I exit.
Speaker: Hopefully, I'm net positive. But then there are the people who want to figure out saying, okay, how do I... figure out when to jump on this roller coaster at the right time and when to exit it at the right time. So I'm able to ride the up moves.
Speaker: and I'm able to avoid the down moves. And that's what we call somebody who's active. So for example, somebody looks at the stock market and says, okay, Maybe...
Speaker: Um, And I'll give you a US example because I don't want to give Indian examples. I don't want to... make people believe that I'm giving them recommendations. So I'll try to keep it. third party. So if you think of the US market,
Speaker: ah you know today somebody may say um tech stocks. have had a great run over the last one year or two years lots of different people have said ai stocks are going up Now, somebody may have invested in Nvidia and made a lot of money.
Speaker: but If they are looking forward, they may say it looks like the next two years or one year based on what... that person believes. They may feel that AI stocks are overvalued.
Speaker: and too much of noise maybe it's going to have some correction so The active guy is going to basically say, look, I've made enough money on Nvidia.
Speaker: I'm going to take some money off the table. I'm going to sell some of the Nvidia stocks. So I can use that money to invest in something else. While the passive guy will say, Nvidia stocks... I trust the company. I trust the CEO. It's going to be great. So I'm just going to sit on it. I'm okay if it falls 40 % from here.
Speaker: because I hope it will go back up another 40%. and So, in the second group we have these people who are now looking for these kind of insights. They are analyzing the market. They're spending time watching CNBC, watching Zee Business. They're also reading the newspaper. They're spending time analyzing.
Speaker: Maybe. investment reports. as well as different um tools. ah right And these are people who are then what we call the active stock investors.
Speaker: And in that is where now you have the second group of people. um Some of these people are buying and selling stocks. over multiple weeks and months.
Speaker: Some people are also buying and selling stocks within the same day. So today there's a big drop in a certain stock I buy in the morning and in the evening I sell and I make. maybe some percentage. points on that.
Speaker: So this is called ah day trading. day trading yeah which is called day trading which is where you're trading within the day Now in this segment of people, we have day traders who do day trading and then we have these swing traders or positional traders Hudo.
Speaker: trading around a position. so this is where this nvidia example of somebody saying i'll buy nvidia now i'll keep it for three four months And based on some signal, signal could be a fundamental signal, like maybe the earnings was very bad.
Speaker: Or it could be a technical signal. Technical signal is something like I look at the charts, I look at the price movement. And I feel like the price is not doing well. Based on any signal. it Could also be some you know news. Maybe they hear that the CEO has resigned.
Speaker: And that news makes them feel uncomfortable. So whichever signal people use, based on those signals, they decide to exit. And that person is called the positional trader. So you have these two guys now who are the other. parts of stock traders.
Speaker: So there are ah different monetizations from... this uh These two? like day trading is monetized differently for a broker and ah the positional trading is monetized differently.
Speaker: Yeah, and so... um In day trading, it's very simple. It's transaction -based monetization. Every trade you make, you either pay 20 rupees or you pay 10 rupees, like on Sahi.
Speaker: and every time you buy you pay 10 rupees every time you sell you make 10 rupees so the transactions are are that Now in the case of positional traders, again you make money on the transaction.
Speaker: ah But there's a new angle here, and this is something that is... recently becoming very popular. in the market. This is called margin funding. ah So let's imagine this guy who's now looking to buy Nvidia stock. And they have maybe $10 ,000.
Speaker: in their uh account right But this person is like super convinced. key NVIDIA is going to really go. So now what do I do? now in the old days what used to happen is people who were that convinced would basically go take money.
Speaker: from some personal loan, even borrow from a friend and maybe put that money in the trading account and use that to trade. ah which obviously is not recommended because you end up like having to pay a very large interest rate or putting a lot of risk.
Speaker: But now what we have is this construct where brokers can lend money to people. who want to take. the such kind of margin or such kind of loans.
Speaker: And this is called margin funding. Margin funding is very simple. If you have say $10 ,000. and you want to buy a stock the broker can tell you saying, I can give you maybe an additional $20 ,000, additional $30 ,000.
Speaker: ah so that you can buy Nvidia. Now your $10 ,000 plus the broker's $20 ,000. It means you can buy $30 ,000 worth of. NVIDIA Stock. And the advantage to the user is Let's say the stock went up by 10%.
Speaker: Right? In the... Previous world with $10 ,000 I would have made. thousand dollars profit. 10%. I think. But now with... $30 ,000 worth of stocks, I'm making $300 worth of $3 ,000 worth of profit.
Speaker: So suddenly the profit on my... investment. has gone from 10 % to 30%. Because you remember the... customer customer only got $10 ,000. On $10 ,000, they made $3000 profit.
Speaker: right So for them, they were able to amplify their games. They were able to amplify their gains. Now what does the broker get in return? In return, the broker basically charges interest. The broker says I've given you $20 ,000 worth of a loan.
Speaker: I'm going to charge you a daily interest on that loan. until you pay back. the loon. And the way you pay back the loan is very simple. The day you sell your Nvidia stock, the money that comes out. I will take my $20 ,000 back. You get to keep all the profits and any returns that you have made.
Speaker: So that's the simple thing. So here the broker may say, okay, I'll charge you in. in At least in the industry right now, it is about... 14%, 15%. Annual interest.
Speaker: ah So daily basis. comes down to some small number but Idea is that on a daily basis, the Customer just gets charged. And. They can decide whether they want to hold it for one day, three days, one month. six months, one year, and sometimes people may hold it for very long.
Speaker: if they have a very good uh you know good success with the stock So this margin funding is now the second... ah interesting and you know a new way in which monetization is happening. You're seeing...
Speaker: brokers, especially even the discount brokers building. meaningful size books. where they are able to extract margin interest. from customers.
Speaker: i think I think that's the main idea. It's it's about... essentially giving the user the option. to double down on their conviction if they have it. um I mean, yeah, we can talk. There are a lot of different pros and cons of it. I'm sure you want to explore all that.
Speaker: ah The first question I have is... ah Typically in lending, you have an underwriting function, you know, risk underwriting. uh, So how is that happening for a broker? and you know like like do you underwrite every customer or how does that happen?
Speaker: Yeah, yeah, so great. so It's actually a fundamental... part of the entire process so the risk management and the underwriting and the beauty of this is today when you buy nvidia stock and let's say example ten thousand dollars i got twenty thousand broker gave me So $30 ,000. worth of Nvidia stock is purchased.
Speaker: Now, when I purchase that stock, the broker actually places a lien on that. So the collateral that the broker uses is nothing but the stock that the customer purchased. Right, it's essentially loan against an asset. yes yes so so the beauty of this is i don't have to provide any new collateral I have already bought $30 ,000 worth of Nvidia stock. I took a $20 ,000 loan from you to buy that. So that broker now says $20 ,000. loan I'm going to use the $30 ,000 stock as collateral.
Speaker: which means that if the stock value falls. below $20 ,000 or close to $20 ,000. the broker can sell the stock.
Speaker: and make the money. So for the user... This is called margin call. it's Yeah, it's margin call in some sense. yeah it's It used to be that they used to call the...
Speaker: ah customers in the old days, they used to literally pick up the phone and say, sir you need to add some money to your account and that was the call And so that word margin call is coming from that that behavior.
Speaker: Yes, but it's the same thing. These days, of course, you send notifications, you send emails, you also do outbound calling. Um, and you give the customer time now the customer can do two things one is they can basically bring money from outside and add it to their account.
Speaker: um or if they feel like, yeah, it's okay, I don't want the position, they can let the broker liquidate. in the position So the broker would... Only give time as long as the asset is still covering the loan value. If it is falling below the loan value, then obviously you would probably...
Speaker: even if it's like say, 110 % of the loan value you would... Probably. Yeah. Yeah, there's a slight margin of tolerance or slight margin of safety.
Speaker: that brokers use. and based on that, they may proactively ah close the position. Okay. So you're saying that there is zero decision -making here other than a one -time policy?
Speaker: that I will give. 2x margin to my customers because it is a loan against asset or is there some further decision making that people buying nvidia stocks will get 2x margin or these type of customers will get 2x margin.
Speaker: Great, great. No, I think this is great because I think Again, we're peeling the onion here. I didn't want to expose all that complex complexity, but since you are going there. ah It's actually a little more complex than that. There are ah both limits that are set at the individual stock level.
Speaker: So for a stock ah which is very less volatile and very stable. we may say we'll give more margin because we know the stock doesn't move so much so we're okay with the risk.
Speaker: But if a stock is very volatile, it can fall 5%, 6 % in one day. then the amount of margin given is less. So that's one consideration based on the stock. The second consideration is also based on the user.
Speaker: Now, some users can say that I want a lot of... leverage. um and brokers can decide limits. for users. So... the broker since they are the one providing the money in this case they get to decide How much? Leverage I can give you um We obviously also don't want to over leverage our customers because that can be like disastrous for them and for the broker.
Speaker: So there are also customer limits that brokers can set. ah And people can go all the way. But generally, every broker will have like a maximum limit they can give. ah because just a simple math that if I have X number of customers and I have Y amount of money. I can have to distribute that across multiple customers. So I need to now ensure that any one customer cannot take all the money.
Speaker: Got it. Okay. Ew. so So this is another... product slash revenue source for a broker, which is this margin funding. Um,
Speaker: What are the other revenue sources? We've covered two so far. One is the broking fees. So, we have covered both on stocks, we have covered um transactions and we have covered this and then of course the big one which is. where a lot of the attention is is the Futures and Options So the the third... um kind of segment are traders who are mostly trading in these options category.
Speaker: um And option category... um If I were to... Talk about options. Um, and The option is... Essentially, like um okay I'll give you an example. And this is an example.
Speaker: um like I've used in the past and I don't know how. effective it is but I've definitely used it so let's see if it works ah Let's say you ah you are you know you have a... Pizza shop.
Speaker: Right. ah And now there's a pizza that... people really like and it is costing 200 rupees Um, And now...
Speaker: Costs are going up. everything is more expensive so the pizza guy knows that the cost of the pizza price will go up from 200 it may climb 220 230 they don't know but they know ki it's going to claim up.
Speaker: so um the like i love I love the pizza shop. I always go there to eat my pizza. So I walk in one day to this shop and I tell the ah bakery guy that I'd like to buy... a An option from you.
Speaker: to buy this pizza. For the same price, But I should be able to buy it. even six months from now at same 200 rupees. which means that I'm locking in the price of that pizza at 200 rupees for the next six months.
Speaker: And anytime if the price goes up, 200 220 225 i don't care My pizza is only coming at 200. So the The bakery guy looks at me and says, interesting. That's an interesting proposition. So you're asking me to fix the price of my pizza for the next six months.
Speaker: Okay, fine. I'll do that. I'll give you this small little coupon. I'll write this small little coupon for you. but You'll have to buy this coupon from me. ah And... And obviously the... Question is, why should I pay for the coupon? The thing is, see, I'm giving you this kind of fixed price guarantee.
Speaker: So for that guarantee, I need to cover my risk. So I'm going to charge you. We charge you 10 rupees for this coupon. So now I buy the coupon from him from 10 rupees. So that coupon is the option.
Speaker: Now, what that coupon basically says, it says that Dale has the right. to buy pizza from Pizza. Shop. for 200 rupees.
Speaker: And this right is valid till the next. say one month. Now this right gives me the ability to walk in tomorrow and say, guys, given this pizza, let me essentially get that. pizzas at 10 rupees and so on.
Speaker: And there's typically a quantity attached to it. There's a quantity attached to it, right? five Yes. he does it Yes. yeah So the coupon will also say, hey, you can buy. up to 100 pizzas at this price so there is a quantity established to it there is a price and there is a certain expiry of this coupon
Speaker: And that is your option. That is basically an option. Now there are two kinds of... It is not mandatory for you to exercise the option. Yes. It's a beautiful. So let's say six months go by and every day I walk into the pizza shop and... Interestingly, the prices are starting to fall because maybe fuel is cheaper. Maybe tomatoes are now cheaper.
Speaker: And the price of the pizza is now 190 rupees. Obviously, I will not go and buy it at 200 rupees because anyway I can buy it from the pizza directly at 190 rupees. So I'll just tear up my option and I'll throw it away.
Speaker: So in this case, I've basically ignored or I've discarded the option. So, what did I lose? i I lost the money that I paid initially to buy that option. If you remember, a guy charged me 10 rupees.
Speaker: for this. Coupon The 10 rupees is all the money I have lost. If I don't use the coupon, I just tear it up, I throw it or I let it expire. And that expiry basically results in me losing the 10 rupees that I paid.
Speaker: I don't have any commitment. to buy anything from this bakery guy Now, on the other side, you have somebody who is selling me these coupon so who's called the option seller And the option seller is again on the... other end of this transaction now this person is Actually, the guy who's taking on a big risk.
Speaker: It was the... Pizza price could go up to 300 rupees. So that he's just getting 10 rupees. Yes. right so he So he's taking this entire insurance. right He's saying that I'm going to guarantee 200 rupees irrespective of the price move. If the price becomes 300, I walk in, I say I want my pizza at 200. He has to give it to me. It's an obligation.
Speaker: so an option seller has an obligation they have to ensure that they are able to fulfill What? the customer wants And. If... the money like changes let's say the price is 200 that i've got but the actual price is 300.
Speaker: the option seller has to put the extra money. to be able to give me that pizza at the price. So their loss can be very large. But then, the beauty of what option sellers do this pizza bakery guy is very smart The moment he heard that I want pizza, he realized that this guy really likes the pizza and probably will come to buy it.
Speaker: Let me price the coupon in a way where I'm able to... Take care of my risk. So he's going to do his... math and his accounting in his head and say, I think the pizza price is going to be maximum 220 rupees.
Speaker: based on everything I know. So let me charge 20 rupees for this coupon. and guess what by the time the six months go by if the price is below 220 rupees I've already made up the money because I've...
Speaker: I've, Taking 20 rupees extra from you. So now I have. 20 rupees buffer that I can use. So the option seller is typically people who like to price options. They are the people who try to figure out what is the best price of the option where the option price is going to be so perfect that the buyer will never make money.
Speaker: The risk though, as I said, is if there is, let's say, war breaks out and the fuel prices Shoot up, cooking price. cooking ah gas price shoots up. Suddenly, this guy is going to be bankrupt because now they have to make sure that they give the pizza even though they...
Speaker: only anticipated 20 rupees. So that's basically option trading. you know Option trading is essentially people buying and selling this coupon. right And and then nobody is buying pizzas at this moment.
Speaker: Everybody is buying that coupon. Now, the beauty of this thing is, let's say I buy this coupon. Now, I go back to my friends and be like... Guys, I got this coupon. It's a 10 rupee coupon to buy the pizza. now my friend is sitting over saying i love that pizza also i really like that pizza And I think 10 rupees is a great deal. You know what?
Speaker: Let me buy the coupon from you Dale. for 15 rupees. because i think it will go up to maybe more so i'm okay paying five rupees to me now Dale and his friend are buying and selling the coupons which is where the price of the coupon is going up. The pizza hasn't moved. The pizza price is what it is.
Speaker: But the coupon price goes. That's what the option price keeps moving. So the options, when they're bought and sold by people. That's when you see the prices move. Right? and that's really what's happening in the market today people are trading options that are linked to what we call the underlying. The underlying in this example is the pizza.
Speaker: In the market, obviously, it could be an option which is linked to the Nifty index. or it could be an option linked to the Sensex. or it could be even an option linked to a stock. ah like a Reliance stock or HDFC.
Speaker: And based on the People's perception. of what will be the price of the underlying. People are trying to price this coupon, this option. And if there's a lot of bullishness, people believe that the price will go up. The price of the coupon moves up.
Speaker: If people feel like the price of the underlying will not move, the price of the coupon falls. And that's in a... In a nutshell, what option trading is really all about. Um, Why?
Speaker: ah so And options are essentially called derivatives because they're deriving value from the underly underlying asset. Why is... ah ah Why are people more attracted to... buying options rather than buying the underlying Because it's it's cheaper.
Speaker: it's cheaper um like two things actually not just cheaper ah one is obviously as we said the pizza costs 200 but the option only costs 10 rupees. So here I can, if I have...
Speaker: Uh, 100 rupees with me, I can buy 10 such coupons. but I can only buy half a pizza. So when I think about The first thing I can buy more options because the cost per option is much less. It's a fraction of the. underline So that's the first thing. It allows people who have lower...
Speaker: ah capital to be able to participate. Um, Now, the second thing, which is actually where the exciting bit of options is for a lot of people is the fact that The price move.
Speaker: that happens in an underlying is much more Um, I'd say. Um... elevated much, much bigger when it happens on the auction.
Speaker: Let me explain that. right like Let's say you're... Pizza. is 200. And 200 is now 10 % increase. So it has gone up to 220. Now, 220...
Speaker: means that the price of the pizza is 220, your coupon was 10 rupees. So you now ah were... be able to buy a pizza at with 210 rupees. You paid...
Speaker: 10 rupee for the coupon and you paid 200 rupees now that 10 rupee coupon is actually worth 20 rupees now. because if you if you remember the math now the person who's buying a coupon is basically going to say 20 rupees is the coupon because price has gone up to 220.
Speaker: So just there, the person has gone from owning a 10 rupee coupon to 20 rupee coupon, which means they have doubled their money. So because I've doubled my money with a very small move in the underlying and able to potentially have very big moves in my Investment.
Speaker: And that's the second piece that makes it very interesting for many people saying, can I If I catch a big move, this option can move much bigger, much faster. So that... 10 percent underlying asset price change is actually Translating to 100%.
Speaker: change in the value of the option, which is what makes it so exciting. Um, Oh. Why, uh... but But I've also read about... people losing a lot of money on options. Are these people who are selling the options who lose money or even people who are just trading these options lose a lot of money?
Speaker: know the The majority are people who are buying options. um and um This is again... It is that math. that comes into play. So while we gave this example of 10 rupees and 20 rupees The actual option pricing is a very complex equation. It is something called a black Shoals.
Speaker: formula, which was, in fact, they won the Nobel Prize. for inventing this formula. and The the and economists who came up with this formula, won the Nobel Prize for it because it is a very complex formula that tries to derive a fair price.
Speaker: for this coupon based on the underlying. right and essentially what you're doing is you're trying to price uncertainty Even in the pricing of options, there's a lot of math.
Speaker: And generally when somebody goes to buy an option, they think key this will jump up and this will move up. But a lot of times that move has already been priced into the market. So when you are buying an option, you may think you are getting a great option to buy something.
Speaker: But when people see the underlying move, They may realize that sometimes the option does not move because guess what? The option was already priced. to expect that move And hence, when you buy the option, you may still realize that your option price is not Worth anything.
Speaker: because the market hasn't moved that much or you haven't been able to get the deal that you wanted. So net -net when you think of option trading, the odds are against the buyer.
Speaker: um because they are trying to fight probability. So... ah And like... Yeah. equity investing where you are buying an asset. in uh option trading you are still buying but what you're buying is not an asset it's a Picking Clock.
Speaker: And yeah the the moment the expiry... Date reached is reached. That's what zero. Yeah. While you could get 100 % appreciation, you could also lose 100 % of the money you spent.
Speaker: So. ah but While in our example, it may give the impression that it's just 10 rupees. But somebody who's bought 100 options or 1 ,000 options or whatever, then he loses. all his money. uh, which is, ah what makes this a risky strategy, and especially if you put all your money into option trading. you could potentially lose all of it.
Speaker: Instead of investing in the underlying wealth, you are still getting an asset for the money that you're putting in. That's right. that's right you You could lose all of it um and Because it also feels...
Speaker: Like it's... you know it's very It feels like it's a big potential return. um It... It's harder for people to have that kind of trader discipline.
Speaker: to say let me not over trade or let me not know Everybody feels that, okay, if I make this one more... Um, trade, I can recover my losses, I can get back.
Speaker: So, I think there is a certain... you know. Unfortunately, it acts as a little bit of... Allure. to a trader to say that if I just get one winning trade, I'll make up all my losses.
Speaker: Right, right, right, right. That 100 % appreciation possibility yeah hundred percent is always responsibility is ah yeah, okay. yeah I mean, it's a non -trivial possibility that you will get you'll double your money.
Speaker: Yeah, you know it it happens I mean um the interesting bits are that. there are always enough moments in the market where things move um on a daily basis you will see Sometimes some options go from like 3 rupees to 20 rupees.
Speaker: in 30 minutes. Right? In 30 minutes. uh and and it again, the point to its probability. And so when you think of probability, it's like, again,
Speaker: You could say ah somebody would buy earthquake insurance. and for the longest time maybe nothing happens. But that one time the earthquake happens, they'll make billions.
Speaker: Now the problem with earthquake insurance is that you will probably lose your insurance money most always because earthquakes may not happen for 100 years. Oh. And most traders, they end up burning out their capital.
Speaker: before they even get those moments. So, it it comes down to you know being more disciplined. there are option traders and option buyers who actually do very well and since I Started trading in the US. I actually picked up a lot of my background from watching traders and learning from traders in the US. and you If you go back and look at some of these traders in the US, Many of them have made Very large.
Speaker: A capital. by being very disciplined. but also being ah able to kind of get the right moment, right timing and all that. so It's not an impossibility. It's definitely, again, about how do you well do you control your emotions, how well do you enforce your systems.
Speaker: How well do you become a disciplined trader? Um, I think where we are, at least in India, is a lot of people are entering the market with the hope that this can become Something.
Speaker: And that hope, unfortunately, is not going to give you. returns And anything, not just in trading, but in anything in life, if you don't put in the effort and don't put in the... time you can't um Like I say this to people like you don't want to be going to a doctor who has basically just seen a video.
Speaker: and now trying to know do a surgery on you, right? You want the person to have done five, six years of study before they start doing surgery. So if you think of that, where somebody expects somebody to be...
Speaker: done the homework and studies. Why would we not look at this and say, this is also an important business. You're dealing with money. You have to spend the time and effort to learn what you're doing. And if you don't...
Speaker: Why do you think you'll be any more successful? right and so i I strongly believe like we like we have to get to a space where we... We actually support. the traders and we actually support the investors in education and helping them learn.
Speaker: i I don't think that we have to push people away. I actually don't. subscribe to the view that you know these traders are like sometimes people say traders are gamblers or XYZ, I don't subscribe to that view at all. I believe that most people here are trying to somehow figure out how to improve their life.
Speaker: Most people are trying to figure out how to make a little extra money so that they can have a better life. right At the end of the day, that money buys you that financial freedom. So at every level of society, people are trying to... actively figure out okay how do i make something extra And I think...
Speaker: it's on It's on us. uh platforms like sahi to basically build tools, build education and build some of this discipline into the platform so that people can make informed decisions. People can um actually do things in a way where they can take control over their financial pressure.
Speaker: Oh. When you say You need to be disciplined. What does that mean for an options trader to be disciplined? Great, great. So let's break it down. If you think about... probability there is a you know, a very good book which is Talks about thinking in bits.
Speaker: Annie Duke or something that yeah yes like So the idea is very simple. You're basically placing an informed guess. or a bet on some event happening. Now when you do that,
Speaker: you want to make sure that you are not putting all your eggs in one basket. right You want to be... able to spread your risk across. So first thing in discipline is figuring out What is the amount of money you're putting on any one bet?
Speaker: like if i' am If I think that this particular index will jump up by X percent, Do I take all my money and I put it on one single place? Or do I take maybe... 3 % or 5 % of my money and put it.
Speaker: One way that I found, and this is something that I've learned, unfortunately, also through my own. Trial and error. is that I like to now distribute my trades across multiple uh, different instruments so that i'm getting this kind of diversification even though i actively trade I don't.
Speaker: Put everything into one. So, you're saying disciplined in your portfolio allocation. you It's we what we call position sizing. Okay, position sizing, okay. So position sizing is essentially when I'm entering a trade. How much money do I buy? So first thing is that, am I being disciplined in my position sizing? That's the most important thing. In fact, a lot of times people...
Speaker: What? too much money on a certain trade And then... When they see the market move, they get nervous. and then they exit. So first thing is, are you able to control or put maybe a smaller amount? Start with...
Speaker: a smaller amount. What ah you know I've learned is that you almost have these things like you know probes. So one of the traders I used to follow used to talk about this, where when you try to trade. You want to first start by putting a probe.
Speaker: It's like going into space. You don't take the spaceship and you show up. You send one small satellite out there and you see what's out there. You try to understand. what's out there. Similarly here, you take a small maybe take a very small amount and place a trade on it.
Speaker: Now, if that trade moves in your direction, now you know that something is good. Maybe there is... potential let me add to that position If the trade... comes back and let's say you go into loss You just cut your position and you stop.
Speaker: So there again, if the satellite gets burnt up, you're like, fine, I might... Small probe didn't work. Let me try something different. So the first thing is position sizing. The second thing is having a view of not just...
Speaker: when to enter, but when to exit. A lot of times people jump into trading where they start. with the trade But they are not thinking about, okay, what is my exit?
Speaker: And that's a problem because sometimes that's where you get emotional about a trade. You may think about... greed. Where maybe, i know i'll I'll try to have... 100%, let me wait for that.
Speaker: Or sometimes your trade goes into a loss and you start hoping that it will recover. So instead of exiting, you start trying to buy more. saying, maybe I'll just... Keep hoping.
Speaker: In both cases, you are You're not trading. You're not sensibly investing. You're basically planning on hope. And that's where emotions come in. So having a very clear trade setup, which means your exit.
Speaker: is really important. Knowing what is your maximum loss. at which you will... trade and knowing what is the amount of profit that you will be happy taking.
Speaker: Both these are two questions you want to have. um And that's the second. ah key thing. The third thing, which is know Very simply put, having an overall view of how much money you want to make ah or lose on a daily level.
Speaker: Now, this is related to where people start Maybe they make money on the first trade. And instead of stopping, they say, let me keep going. Because now I feel like i'm I'm really into this and that's when you start to lose, right? You may make a few successful trades, but...
Speaker: End of the day, you may end up losing. um or you may have somebody who may have lost money in the first trade and may have hit a certain limit. But then instead of... Stopping. They say let me move more money.
Speaker: from my bank and let me start. trying to recover this. So there we call these things as revenge trading. where they are trying to you know take revenge on the market. They want to... Somehow... make up for their loss.
Speaker: Or there is overtrading, which is where you think you are doing so well that you can just keep going and nothing will happen. In both cases, things don't really work out very well. and generally in that both cases you end up regretting those decisions.
Speaker: So this third thing that I always... Like, think about this. Do you have a max loss, max profit limit for the entire day? So if you are trading, you should have a number in mind saying today I'll try to hit.
Speaker: This much. I'll try to... take a profit of 10 ,000 rupees or I'll try to make a max loss of say 2 ,000, 3 ,000 rupees. And... Whatever happens, irrespective of...
Speaker: how many trades I make. The moment I hit those limits, I'm out. I'm done for the day. I close my laptop. I put my phone away. And I go back to other things. Those three things, in a position sizing,
Speaker: having a very clear exit strategy, both for profit and loss. and having an overall view of your trading session These are three things if done well. will ensure that people are able to you know systematically do this in a disciplined manner and over time they will see a lot more success.
Speaker: you know this This sounds a lot like advice you would give to people who are addicted to gambling. I mean, it's it's true. Unfortunately, some some people do have...
Speaker: It triggers very similar behavior, to be honest. um It triggers that. dopamine higher of being right. And in that sense, there are people who like... Just the feeling.
Speaker: and they lose control. so um That's why I think it's so important to focus on education because It's one thing to say that we just ignore everybody and say, you know you are bad and you are a gambler. And and I think that's the the wrong way because we are pushing these people.
Speaker: into the shadows See, even if you imagine a hypothetical world where FNO did not exist. people will still go and find something else to do. and um There are crypto apps where people can spend money and and maybe lose even faster.
Speaker: There are unfortunately unregulated apps like Forex apps where people are... trading on currency even though it's not allowed. So, there are different ways in which people will try to figure out how to make that extra money.
Speaker: um I think... like The better thing is to figure out how to provide the systems, the education, the control to help them. become better. And that's what I think we've been trying to do at Sahi. really trying to say how do we help traders become better? How do we help investors become better? Because...
Speaker: we realize and even the data from the SEBI report is very clear that people are struggling. people ah People want... to figure this out. There's obviously a very high aspiration.
Speaker: People have ambition in India. People want to figure out how to grow their money. But the tools and the systems are not designed for them to help. make those decisions. It's it's pretty much...
Speaker: Hey, we've opened the casino door. go in and do what you have to do. do Do you have... ah You know... ah are you putting your money where your mouth is in a way? Like, so you said, for example, ah daily limits. Does Sahi app have a feature where you can set a daily limit and then it will lock you out?
Speaker: Absolutely. absolutely we We actually have all of that. we So we have this thing called... E &L Protect. Profit and Loss Protect. That's a feature we have on the app.
Speaker: So it's a very simple feature. You can go in that and you can set... At a daily level, you can set what your max loss should be and what your max profit should be. Just two numbers, you can set them.
Speaker: And when you enable it, What we do is we monitor your... account now when your account hits that certain level we automatically can close all your positions for you.
Speaker: We also have an option where there is something called a kill switch that is also available where if you say... he you know not just close my position but also lock me out for the rest of the day you actually have an option where you can enable the kill switch. Now the kill switch locks you out.
Speaker: So with this P &L Protect, somebody can... ah literally go to Sahi and say, I don't trust myself. Let me enter my max loss, max profit. And then you guys keep me ah disciplined.
Speaker: um And that's something we have. ah What's interesting is now we are also experimenting with AI. ah because we believe that AI has as much more potential to help become like a personalized assistant.
Speaker: right So we have launched this AI agent, we call it Cairo. um And Cairo sits within the Sahi app. And one of the things that Cairo is focused on is trader discipline.
Speaker: um And the idea of Cairo is very simple. It is an AI assistant that is helping you become a better. trader, better investor. Now, in that world, If Cairo notices that you are making a lot of losses.
Speaker: And we have, we look at you know your past history. Cairo will automatically send you a nudge. Right. there and say, hey, we've noticed that your loss today is more than the average loss in the last X days.
Speaker: Do you want to take a break? So we call it, you know take a pause. And this is the notification that we send. we don't like even proactively as a broker we're probably one of the first brokers to literally tell the user Stop trading.
Speaker: and Because we believe that obviously that the user is going to hurt themselves if they... end up over trading. So in that small little nudge that you get from Cairo, you also have the option right there to enable your kill switch.
Speaker: Hmm. So. instead of asking the user to go and every day remember to do that, we will just notify you proactively. and tell you Do you want to stop? So this is just a kind of the... Features we are building to is make it very seamless. for somebody to have that control.
Speaker: ah How does option trading get monetized for a broker? It's again per trade? Per per transaction, yeah. yeah So, from what I understand, the manufacturer of the option is typically institutional. It's it's not like a retail...
Speaker: ah investor who's manufacturing the option. No, no, no um no such thing there are people who are selling options and there are people who are buying options they could be Anyone. retail could be buying as well as selling.
Speaker: And there could be institutions which are also buying options because somebody may also buy an option as a hedge. against a large position that they have. The only difference is that the amount of money required to sell option.
Speaker: is much more than the amount of money required to buy an option. Can you just explain why is that? Yeah, yeah, yeah. So great. So we go back to this example of that pizza thing, right? And and now again, I just paid 10 rupees. So for me, option buying is very easy.
Speaker: Now when... Those. Pizza owner. is selling the option. In this example, the pizza owner can sell as many options as they want and keep collecting 10 rupees. But the reality is that they are taking on risk.
Speaker: Because tomorrow if the price goes up to 300, that guy is going to get bankrupt. And that guy will not be able to then give up these pizzas to all the people they sold. The option will be worthless. yes what Exactly. So here's where the exchange comes in. And this is where the exchange steps in and says,
Speaker: Cool. If you are selling the option. That's great. And you are making this and a premium. You are collecting this money. That's also so great. But I'm going to take some guarantee from you that you can actually service this option.
Speaker: And this is what is called margin that the exchange collects now from the option seller. And the exchange does it to ensure that when the time comes, if the option buyer comes.
Speaker: The seller has the money available. to be able to give them the commitment. like So now the exchange has got another formula that it uses to calculate how much margin it should collect from the seller. every time they sell an option.
Speaker: And the reason it does that is because again, it's trying to protect the option buyer. And it's also trying to ensure that the market is... i Rational. You don't want somebody coming and just selling options.
Speaker: and collecting all the money. And then disappearing when the time comes to... collect, right? so that's where the exchange acts like this regulator which says that if you sell you need to kind of block It's much money. Now for that,
Speaker: the option seller has to have a lot of money. because they are literally asked to ensure that They can underwrite. the underlying And that's where option seller...
Speaker: typically like would need like almost like a one lakh two lakh rupees Per lot. ah to sell. versus ah option buyer may need 3000, 4000, 5000 rupees to buy the option.
Speaker: So... uh just to translate this make sure i'm getting it right to sell four four five thousand rupees worth of options you may need a one lakh as the uh margin money that you provide to the exchange Yeah, so if you think about it, and let's say there is one quantity of option that you want to buy. So as we talked about an option also has a quantity.
Speaker: Link to it. like So today the exchange also decides what is the minimum quantity per option. ah So in the case of Nifty, for example, today it's 65.
Speaker: ah units. which means every option i buy of a nifty gives me the right to purchase 65 units of the underlying nifty. now based on the value of the nifty at the time and based on the size of the ah options that are It sold.
Speaker: There's the formula. that basically says that x into y into z and then some um formula. The... amount of money that you need to have is about between one to two lakhs rupees.
Speaker: of margin. If you have to sell even one option. um And the buyer who has to buy that one option typically only has to pay that option price, which is... could be as low as 3 ,000, 4 ,000 rupees.
Speaker: okay And this margin amount would also... probably have the volatility of the underlying asset as one of the Yes. The margin amount is actually calculated multiple times in the day.
Speaker: And as a broker, we we get that information from the exchange and we are supposed to... essentially block that money from the option sellers account. Okay. so yeah The broking app also allows anyone to create an option.
Speaker: you just have to i i can sell right now yes ah okay okay okay Okay. Therefore, both retail and institutional are selling. ah What was that Jane Street case about?
Speaker: Okay, uh... This Jane Street case was... um, Um, It is very different. ah problem statement but Essentially, let's let's go back to this example of the option where you are trying to You have sold a bunch of options.
Speaker: Let's say at a certain value, you're saying that 200 rupee pizza. I want to be able to buy. So Jane Street is the seller. They say, okay, I'll give you all these options. And the option is going to only be worth money to you.
Speaker: if the price of the pizza is above 200 rupees. right so that's the entire construction now you go back and you've bought a bunch of options from jane street you are hopeful that the pizza price will go above 200.
Speaker: So you're waiting to make money. So now, by the time the... Option expiry day comes in, which is like in the last few minutes. The allegation by the regulators was that there was a separate entity which jane street also had it's part of the larger jane street international unit.
Speaker: which was manipulating the prices. in a way where the Price of the index was just below the option value that they were selling. So you can imagine that today the index is nothing but a collection of 50 stocks.
Speaker: it is Nifty particularly is a collection of 50 stocks and there you have HDFC, you have your state bank, you have ICICI. you have these big ah blue cap a blue chip stocks. So the allegation against them was that If...
Speaker: One company was selling options at a certain price. and to make sure that those options are expiring worthlessly. Another company was either buying or selling the underlying stocks.
Speaker: to move the index. And by buying and selling the underlying stocks with ah with a large amount of money. they were able to control the expiry. and hence making money on the options.
Speaker: So you would... you would basically people would see this as sudden movements in the last few minutes in the market there was a sudden drop or a sudden spike And so everybody who's thinking, ge okay, I'm going to make some money today, suddenly you realize that your option is worthless.
Speaker: And that was what... you know, is market manipulation. and So that's the that's the case against them. And obviously, you know ah like they're having those discussions. I don't know about...
Speaker: where it landed. But from whatever I've read, um that was how this scheme was. Play it out. So... Does... ah Option pricing influenced the underlying stock also. I mean, one is, of course, somebody unethically manipulating like the Jane Street case, but... Other than that, generally speaking yeah Yes.
Speaker: the underlying asset obviously affects option price but is the reverse ever true Yes, it is a beautiful. construct you know It's called the tail wagging the dog.
Speaker: Yeah. So the dog here is obviously the underlying and the tail is the option. But in some cases, the tail can cause the dog to shake. and And one example that is very popular is what happened in the US with the GameStop.
Speaker: ah Stocks. Um, So some of you may know what GameStop was this. uh company that used to sell Gaming. ah CDs, consoles, the and console cds like Xbox and PlayStation CDs. and Pretty much they were almost bankrupt.
Speaker: Because most people are now downloading games from the internet, nobody is really going to GameStop anymore. But. for whatever reason, there was a movement that began. And I say movement because it literally became like this thing where people just came together.
Speaker: and try to work in a single unified manner. And this was largely done over Reddit. where people formed groups and started sharing these ideas on Reddit. but The simple thing that people said was, know how do you... um Um,
Speaker: All right. manipulate the stock. One way is to buy options. that are very far away from the current price So. What that's called is ah far out of the money option.
Speaker: um Now, if the stock is at say $200, and you are buying option that is at priced say $250 or $300. Now. Technically, you would say that's stupid, right? Because the price is 200. You are buying an option for the price to be at 250.
Speaker: There's no way the price will reach 250. So most of you will not make any money. And that's typically what... happens where if you don't buy a right price you end up losing money in the option case But in the case of GameStop, what they realized was there were a lot of these hedge funds.
Speaker: who had basically sold GameStop. Stock. So they were net short. They were net negative on GameStop and they were hoping that GameStop will go further down and the stock will become zero.
Speaker: So when you sell your stock. You also have to then hedge your position. if you are a good hedge fund. because you have to ensure that hey, I'm not completely without any cover.
Speaker: So this is where now the person is trying to ensure that, okay, I use options. to hedge my position. So i'm ah I'm a hedge fund. I have sold a bunch of stock of GameStop.
Speaker: And I'm buying some options as protection. Now, With this, movement. a retail movement. Bunch of people came together online and and there's a whole movie over this. In fact, the game stopped. is a Movie now.
Speaker: where people came together and said, you know what? We are all together going to go and buy these options. You're going to buy options that are far away from the... um Um, from the price.
Speaker: And we're going to buy a lot of them. So if everybody comes together and these were people like the baristas in coffee shops and the Uber drivers and people in hospitals. Everybody came together and through Reddit, they were all...
Speaker: been given instructions to say Let's go buy the option at this price. Now when you have that... Now what happens is... the person who is Selling the option to you.
Speaker: is actually ah an institution in this case. because there's somebody who's saying wow that this is like dumb people are trying to buy option for 250 dollars prices at 200. It's definitely going to be worthless. Let me sell it to you.
Speaker: And as they start selling it to you, they are taking on a lot of risk because now they are selling those options. Right, and they need that margin cover. Yes, so they need that margin cover but more importantly because they are a hedge fund, they also need to hedge their position.
Speaker: by basically having ah buying some portion of the underlying stock. So, it's ah it's a little complex. I'll have to almost draw out the math for you. But the math is that...
Speaker: If I'm buying... ah If I'm selling a lot of options, What am I doing? I'm basically taking on the obligation. to give you the stock. if and when the user comes.
Speaker: Now, in most cases, hopefully the stock remains below 250 rupees. or $250, so I don't have to worry. But there may be a probability that certain chance could be that.
Speaker: $250. and more the stock may move. So now... based on that probability that I estimate. I have to keep some of that stock with me. as backup. Right, because if there is say 10 % chance Then 10 % of what I have sold, I have to make sure I have at least that much stock so that I'm not going to go bankrupt.
Speaker: So the more people started, more these institutions started selling these options. to these so -called individuals the more they had to buy the underlying stock.
Speaker: And that drove up the price. Guess what happened? So when they started buying, the other guys who were short well like damn i'm short and now somebody is buying these this gamestop As I am short, my losses are increasing.
Speaker: And because the losses started increasing, these guys had to close their position. So now imagine the second order effect. Now when I'm... Net shot, what does it mean to close my position?
Speaker: You have to buy the stock and then deliver it. Yes, I have to buy the stock and deliver. Now this short seller also is buying the stock. so now you have two institutions buying the stock one is the people who are selling the options They are buying the stock as cover.
Speaker: and second is all these short sellers who were previously happily sitting on the stock are now saying, let me go buy it to close my position. And that's what caused the stock to acc accelerate. And so this became this this crazy chain where the more people started buying the option,
Speaker: the more the option sellers started to buy the stock. the more the stock price increased. the more the short sellers had to close the position. And this just kept moving. and if you see gamestop and it actually if you look at the stock chart The price moved.
Speaker: Click. tremendously, it the underlying price. moved 100 % or more. Like imagine a stock moving 100 % or more in a few weeks. Robinhood suspended. Yes.
Speaker: And Robinhood then got a call from some friends. ah from and They were told to stop. allowing people to buy these options. But it basically was a classic case where the option pricing was there. Now, it's it's a little bit of a... Perfect storm. It won't happen every time. So I don't think we should. go out and try to replicate it.
Speaker: two things which were actually working very well in the favor. One was there was a very large amount of short selling against that stock. So there were people who were very nervous about the stock going up and you knew that that was basically going to add fuel.
Speaker: That was the first thing. And second thing was this entire coordinated. thing where the number of people buying that of you know, cheap Option was so much.
Speaker: that the volume of options being bought at a particular strike was so much that the person selling it was forced to keep. Hedging. And both those combinations came to create...
Speaker: The situation where the option price moved the stock. ah Is short selling allowed in India? And short selling, just to tell you my understanding is like you are. selling a stock that you don't own.
Speaker: And you're selling it in the future. Like you're saying, I will sell this stock. I will sell Reliance after 30 days at this price. Yeah. Yeah. ah and, and, you're hoping that after 30 days the actual price of that stock will be lower than the price you set ah or you committed to sell that and therefore you make some money.
Speaker: Yeah, yeah. So there are two two ways you can do that. If you have this view that a stock will fall in the next. a few days. There are two ways you can do that in India. um One is... In the...
Speaker: Daytime, I can basically sell the stock. ah Now... this is called short selling short selling means i don't have the stock with me in my depository account. Remember the depository we talked about?
Speaker: but I can go to a broker app and I can say 100 units of Reliance sell. Now, when I do that, The. Entry is basically saying you are net negative.
Speaker: 100 units Now, in the case of India, you can only do this for intraday. By the end of the day, I have to close this position. So I cannot carry my negative entry.
Speaker: forward. um So in India, you can't do short selling across days. You can only do it within a day. And ah the position is closed in what way? Like somebody sold, which they don't have that.
Speaker: They have to go out and buy. No, no. So big again, the the the thing is, because it is an intraday, there is no entry made. Remember, the entries are made at the end of the market. So when the market ah closes that's when the entries are made. So in this case it becomes a buy and a sell.
Speaker: That gets... net Zero. So I do a sell in the morning and then before the market closes, I do a buy. so when the transactions are all tallied, it's a net zero. So there is no... Um, Entry required.
Speaker: in this case. In this case, Nothing happens. But the only disadvantage is that I have to close my position in the same day. So I can't keep... like a long like in us you can carry a short position for a very long day And there are people who will lend their stock to you as... um as collateral and so on. But in India, you are by regulation, you are supposed to close your shots the same day.
Speaker: What if someone doesn't? Close it out? What does the broking... the broker will close it for you. we will ah We will close the position. And whatever is the profit or loss that will be.
Speaker: Devotee notes created from the Yep. Okay. Hmm. ah so Yeah, so that's on the... short selling the other way to do this which is what you described where if i think stock will fall in the next 10 days 20 days is to actually go back to the options again and in the option world you can buy an option for also up situation where the price may fall.
Speaker: So while we talked about the option where we think the price will go up. that is called something it's called a call option A call option is where you are calling the ability to buy the stock.
Speaker: Interestingly, if you think the price can go down, you can buy something called a put option. So you'll hear this word again in the option world, calls and puts. ah Calls are nothing but where we are bullish about a certain uh stock or underlying and we want we think the price will go up Puts are nothing but where we are bearish.
Speaker: And ah in a world where I think... that something has become very expensive and I think the price will go down. I can actually buy a put. from somebody who's selling the option to me And there I will make money if the price falls.
Speaker: in in that time frame. So you can either do short selling, which is intraday, or you can buy a put if you want to. And the advantage of a put is again the same thing. One is you only have to pay for the premium that you got. So again, you'll pay only the 10 rupee equivalent.
Speaker: for the put. And the second thing is you can carry forward, carry it for many days. So I can buy a put for one month. And so in that one month, if any time the price falls. then I may be able to make some money on this.
Speaker: So with options, The... trader can trade both markets when they go up as well as in markets when they fall down um Okay, understood. So, you know, coming back to our big picture question of revenue sources. So we've covered ah revenue through equity transactions, revenue through option trading. ah Are there any other sources of revenue for a broking business?
Speaker: Yeah, so if you think about book And the interest revenue also, I guess, like in margin trading. yeah so mostly The large sources of revenue are transaction revenue and lending. uh revenue transaction revenue is what we covered where your intraday charges per transaction F &O stocks.
Speaker: as well as of course for people who are doing trading um So that's one. The lending revenue, we talked about margin. Um... uh funding which is now becoming a meaningful revenue lending So can you break out your revenue? which Which of these is like a more significant part of your revenue? What's your ARR currently?
Speaker: Yeah, yeah. So actually for Sahi right now to be... Like, clear. We only have transactional revenue. Like a lot of these programs that we talked about are ah products that other brokers have but we haven't yet built them out so we are ah Our his history is, you know we launched in Jan So we're about a year and a half old.
Speaker: And in the last one and a half year, we focused on the active trader segment. um where we've built. technology -led like new products.
Speaker: to focus on helping these traders in terms of one giving them all the information they need in a single screen helping them make those decisions with all the necessary tools, including some AI indicators.
Speaker: And of course, providing them a very reliable trading experience, very stable, very fast, reliable experience. so That segment is the person who's doing transactions.
Speaker: either buying stocks or options on our platform. so today 100 of our revenue is essentially transactional revenue which is this 10 rupees But. order that we charge.
Speaker: ah either stock trading or F &O trading. um As we launch other products, which is where we have to launch margin funding and then eventually go into other products like loan against securities. That's when we will build up. other revenue sources.
Speaker: Typically for mature brokers, which is a bigger... uh, contributor. The interest money or the transaction fees? it's It's for discount brokers. It is all...
Speaker: transaction fees ah the margin funding is relatively newer as a construct. So you would say maybe in the last two years.
Speaker: it has picked up Some. It is of course growing. It's growing in a way where people who want to do equity investing are choosing to use margin. um But today, a majority of them amount of but Revenue will be transaction revenue.
Speaker: You know, you... Launching a broking app in 2025 just sounds kind of crazy. You ah have like...
Speaker: three unicorns already in the space, or two of them. And one of them has, I think, gone public. the But... I mean, it it seems like a solved space. what made you want to take this kind of a bet.
Speaker: Yeah, yeah. No, I think That's... something which everybody has told me when I started. In fact, we started Sahi three years back. So we are just completing our third year anniversary this month.
Speaker: um And at that time, you know I was at... Swiggy. I was the CTO there and obviously we were also preparing for Swiggy's IPO. So things were going very well. um But while I've been doing tech and product my entire life I've also been an active trader active investor myself so I've been doing this since 2008.
Speaker: I started in the U .S. had a bunch of experience trying to figure out how to trade how to invest on different platform is there. Obviously learned a lot, made a lot of mistakes.
Speaker: and also along the way build some skills. Then we moved to India in 2016. And there, while I was working at Amazon and later while I was at Swiggy.
Speaker: i was still actively trading And I started trading the Indian markets. So in this journey, what i realized was that while broking as a problem is a salt problem right anybody in india can open a broking app and can decide how to buy and like place a button.
Speaker: that's very easy at salt But when you talk to people and you ask them, okay, do you know... what to do with your money. So if you ask the... Customer problem of saying, how do you make your... how do you build wealth.
Speaker: How do you grow your money? How do you make informed decisions? What you'll find is still today, people are still struggling with those problems. ah In some sense, what we have solved over the last 10 years is access to the market.
Speaker: But we really haven't given people the confidence and the clarity they need to be able to make informed decisions about their money. The majority of people that I've found have talked to me and I've talked to a bunch of people, thousands of people maybe by now in the last...
Speaker: 10 years in India. ah even at Amazon, even at Swiggy and now the last three years at Sahi. uh, people will tell you a few things. One is, They'll tell you that it takes a lot of time and effort.
Speaker: to be able to do investing. And that's why they've not been able to... Figure it out. right so That's one. Second is they'll tell you it's too complex. too many things, jargon, this, that and everything and market is moving, lots of news, lots of...
Speaker: ah different competing things. It's a full -time job, basically. haha So, net -net, it comes down to people saying that yeah I would like to do this.
Speaker: But. It is too complex. And it takes a lot of time and effort. So I have actually become passive. And that's something which is very interesting. Now, the interesting bit is if you ask people, what did he do during COVID?
Speaker: you'll actually find a lot of people who say, I was actually investing or I was actively trading in COVID. So when they had more time, and because during COVID, many people were working from home and people had some downtime.
Speaker: That time they were able to show that they were actually interested in figuring this out. But the moment life got busy, They realize that they cannot spend... full -time job on investing.
Speaker: Now, when I hear that and when people hear that, a lot of people may say that seems like a reasonable thing and that's exactly how things should be. But... For me as an entrepreneur, I almost got a completely reverse reaction. I felt somebody who wants to control their money, somebody who wants to take control over their financial future.
Speaker: If they are unable to do it, because it is complex, because it takes a lot of time and effort. then that's not a failure on them, that's a failure on us. as a Product ecosystem, we've just given them the ability to buy and sell, but we haven't really built the customer experiences that will allow people to make those decisions.
Speaker: with less effort, with less complexity. At the same time, giving them good control you know And that's what I felt was where the next 10 years is going to be.
Speaker: these These people who are now used to investing, people who are now used to be comfortable with the idea of buying stocks. etfs options I believe in the next 10 years they are going to demand performance.
Speaker: They are going to look at their portfolio every day and say, how do I make this grow? How do I get better? How do I improve my wealth? And they're not going to be satisfied with a buy button or a... nice order form where I can execute.
Speaker: They're going to ask for insights. They're going to ask for tools. They're going to want to be able to get some kind of support and some kind of meaningful. decision -making. so that they can take control. So we are building for that next 10 years. Now we are really saying that in that world where people are going to say ki we want better control and we want tools to help us.
Speaker: Sahih should be the platform of choice. And our vision is very simple rather than focus only on broking. We want to focus on the entire consumer journey. What happens with a consumer when they wake up? okay I may have money in my bank.
Speaker: But when I want to invest, what are the questions I have? What to buy? Now when to buy? How much to buy? And if I have a portfolio, should I sell? Should I hold? Should I stay or should I double down? These are the consumer problems that people have.
Speaker: Nobody has solved those problems. Everybody has said, let's focus on helping you make it super simple to buy. Let's focus on building a search where you can find. a stock and you can buy. But that's the easiest bit.
Speaker: Right. The harder bits are helping this person make those informed decisions. And that's where I think there's so much opportunity. That's really where we think that it's still like you very, very early days. in India and and maybe the next 10 years is what.
Speaker: and that journey is all about. So what it sounds like to me is as follows. Well, it Apps like Zerodha, etc. i have done a lot of... content work on educating investors your bet is that it's not about content but it's about product You need to...
Speaker: educate through the product maybe have some gamification or have more nudges and things like that or even ah how much information to display, how to display, things like that. ah that That is your bet that that ah made you want to build Sahi.
Speaker: yeah Yeah, so... Uh, You know, this actually Comes back from... just a very simple customer insight. that everyone has a very personal relationship with money.
Speaker: And. Your way of thinking about how you want to invest and build your wealth is going to be different from mine. and will be different from somebody next to us. and there's no right way. right i think like We first have to understand that like as a platform, we are not trying to...
Speaker: pre -decide for somebody this is the right way. Instead, we have to think about how do we support... this individual in their journey. of building their wealth. And one of the things that today, like my own... like using platforms both in the US and India is that every platform is the same.
Speaker: It's one size fits all. If I am an investor or if I'm an active trader, the app is the same. the same UI, the same fixed. experience so now i have to figure out how do i find what i need within my app And that's where it gets complex. and so When you think about the product experience, it is starting to then feel optimized for one cohort versus another cohort.
Speaker: Some brokers have taken the stand saying we will build for the simple use case. So in that case, while it is simple, it unfortunately may not have the capabilities and the features that somebody who is more...
Speaker: active needs. Somebody else may say, we have built we want to build for... Like super powerful, super focused. users But in that case, the complexity and some of the clutter can overwhelm. somebody else right and so in the old world you had to make these choices I think with AI, we're coming to a world where we can actually reimagine.
Speaker: the future of how investing happens. ah Because with AI, we truly now, especially with Gen AI, we are at a place where it can be a true personalized. experience.
Speaker: where As you use the platform, the platform gets to know you more. It understands you more. It understands your history. It builds. a soul. of how Akshay is on Sahih.
Speaker: it's And that is very personalized to who Akshay is versus who Dale is. And so then you can imagine using that knowledge. The tool now becomes an assistant.
Speaker: that allows you to have those conversations where it is giving you insights and information that is very relevant to your ah investing style, your trading style. I think that is the Big.
Speaker: Play. Can you? make this a bit more concrete ah ah For example, are you saying that ah The welcome dashboard will change based on what it learns about me or... Like like what? You know.
Speaker: How does this... philosophy translated into the product. Yeah, so... the, Um, like Interesting bits are in almost like ah and how we've visualized Sahih from day one. is towards this vision, right? like the One is you need to build the product in a composable manner.
Speaker: in a way where I can take bits and pieces and construct everything. So first thing what we've done is from a product perspective, every component that we have is extremely composable. In fact, if you go to our Sahi homepage,
Speaker: You can actually customize the Sahi homepage even today. There is a customize option right there. When I tap on that, I see all the widgets. that ah we typically see. And if you look at ah a typical homepage of a broker, it is static.
Speaker: it's fixed because some product manager decided this is the set of widgets we need to have and unfortunately Every user has to get the same homepage. But in our worldview from day one, we believe that we are going to move to this world of personalized journeys.
Speaker: So we built these as modular. So for example, today on Sahi, you can customize your homepage. I may want to put an option trading widget up front. You may want to put a stock scanner up front. Somebody may want to put their...
Speaker: holdings or their portfolio. And so that's possible. So that's the first underlying layer. Now the second layer that we are building is the AI layer on top of it. And this is where with Cairo.
Speaker: We are building this agent. that can not just converse with customers but also take action on your behalf. So, um This is something which is live for about 15 ,000 users right now on our platform we are running it as a closed pilot but in Cairo today you can we see users have conversations with ah the the AI to do things that they couldn't do easily.
Speaker: For example, somebody is able to analyze their trades of the last week. And then, they are able to ask Cairo to create an indicator on the chart to tell them which patterns are...
Speaker: good to go, like green patterns and which patterns are bad. So imagine this thing and this is actually a user who's done this on Cairo where You have traded Maybe you made some trades, some are good, some are bad. And based on that, now Cairo will tell you that every time you do certain...
Speaker: trades in certain conditions. you end up... making losses. So that's that's the first piece, right? It tells you that, okay, at between 11 to 12, you seem to be having this pattern of over -trading. Maybe you should not.
Speaker: or it says that whenever the market is moving in a certain pattern you seem to be losing control. So that's the first bit, which is one, analysis of your trades. the second bit and that's where this is where cairo starts to have some magic is that now what if Cairo can actually put an indicator on my chart?
Speaker: that can tell me visually. that hey, while the market is moving, you are entering a red zone. And this is exactly what Cairo can do today. So Cairo can create a custom indicator.
Speaker: that will literally shade the chart red or green. based on your past behavior so if you are not supposed to trade between 11 to 12 As the market comes into that zone, it will show that. Right.
Speaker: Now, as a trader, it is a visual reminder for you saying, okay, this is my and this is like a phase I'm not good at. Let me... Pause. So, these are examples where you know we have not just built the AI layer, we have also built this modular layer where AI can call these tools.
Speaker: within the broking experience and change the experience based on what you need. So to your point about the homepage, that's very easily possible because we already have a customizable homepage. Now, if you as a user come to Cairo and say, hey, I'm an investor, help me set up my homepage to be investor focused.
Speaker: Cairo can easily go and... essentially execute a tool that will build a homepage that has only the investment -focused widgets that you need. and you can also say why don't you also add ah a option trading widget because maybe once in a while I like to trade options and Cairo can have a very personalized home page where your widgets are unique to you.
Speaker: Now, this is where the stack comes into you know really starts to shine because today... while we have built the tools. There's a lot of effort that people may have to go to figure out how to use the tool. Cairo provides that layer of simplicity.
Speaker: that allows people to ah essentially use the product without having to figure out how to move all the nuts and... volts. So... I'm just wondering about the like AI is a double -edged sword. and people can start asking ei for stock recommendations, which is something the last thing that you want to do and the risk of hallucination. How are you?
Speaker: uh, hedging against these risks. Yeah, yeah. So. so you know one Like we've defined what we would... called like the constitution of Cairo.
Speaker: which is essentially defining what Cairo should and should not do. ah One of the things that we are very clear is the... trader or the investor is still at the center of the experience.
Speaker: you know In our world, we look at this as this. Reese. car driver. Imagine an F1 driver. The driver is the investor or the trader. They are the ones moving the car. They are the ones deciding when to go, when not to go.
Speaker: the AI is like the race engineer who's whispering into the ear. Like, you know, if you see any f1 movie or f1 race There's people sitting who are looking at all the screens, who are looking at all the numbers and who are actually talking to the driver to give them real -time context, to give them some clarity, to be able to help guide their decisions. That's exactly how we think of AI. you know We want AI to be the... assistant that's helping you, at advising you, maybe even giving you...
Speaker: um ah like ability to think deeper. It is not about... trying to Do it for you. But if I ask ah Cairo, that should I buy? yeah Should I buy Reliance at this price? We did. Give me an answer, yes, no? or No, so Cairo will not give you any kind of buy -sell recommendation. That's also part of the a constitution Cairo is not intended to be.
Speaker: ah recommendation agent. Cairo will actually start asking you questions to understand what is your... Uh, Thesis. So it will it will try to help. you get to that answer, right? So it will ask you saying, what are you thinking? What is the reason why you think it is? And then it will give you context. For example,
Speaker: You may say, I think. uh reliance is going to do well because i heard some news about some important thing now you may not have full context so cairo has access to our live news So Cairo will be able to bring in that news and say, you know, here's an article that... we have.
Speaker: Cairo may also say, look, I also looked at the last uh quarterly results of reliance and here's something that is interesting. So the idea is to provide... all the necessary pieces of information provided in a way where you can understand it.
Speaker: and give that clarity to the ah investor. who then will have to make the decision on their own. Just like the race driver, finally they have to decide whether they want to brake or accelerate.
Speaker: We are not going to push those buttons for you. There is a very real risk of an app -less future. um Like today, if I...
Speaker: for example, think, okay, I need a CRM, there's a very high chance that I will ask Lord to make me a CRM. instead of going out and looking for a crm similarly there is a high chance that ah People will say, okay, I'm an investor to cloud and have it create the dashboards, whatever information it needs, and just have an MCP.
Speaker: Which is... able to execute transactions you know some some sort of a like like that kind of an app -less future. ah What is your take on this? Are you...
Speaker: Ooh. preparing for it in the sense that allowing people to just connect a cloud to sahi and do the trade or are you more bullish on the fact that people will need a sahi kind of an app.
Speaker: but and you would want people to continue to come on App2Trade. yeah Yeah, so I think ah it's a... you know It's an interesting one because we've seen this recent experiment with OpenAI.
Speaker: OpenAI for some time they actually had launched the ability to make e -commerce purchases right within the OpenAI tool. Right. or any you integration And all i remember but if you if you look at what they did in the last couple of days, they actually announced that they are scrapping that.
Speaker: entire product. And now they will be sending customers directly to the e -commerce sites to complete the transaction right there. So they went from, hey, give us the MCP, give us the APIs and we'll take care of it to, you know what? not working out.
Speaker: We're completely scrapping e -commerce. We're actually giving you the link back to your site. So now more traditional. ah kind of distribution. role. So, one I feel. There are going to be some portion of users who are obviously going to be sophisticated enough for them where they can figure out what to do.
Speaker: And for them, yes. i I mean, they don't have to be sophisticated. That's my point. If you have cloud, you have intelligence on tap. No, so, okay, or that's a... Interesting point, but I would actually almost...
Speaker: push back that that's a misconception. Because, um you know, clod is one of those things where it can sound very intelligent. And it can never tell you when it's wrong. yeah And so you may think you've got great intelligence on tap and unfortunately it will never tell you that it does not know.
Speaker: So as a user, you may believe that what you're hearing is the right answer. And as a broker, I don't think that is something how we think of AI. like we have a much higher fiduciary responsibility to ensure that We are providing good quality. product.
Speaker: and good quality data right so Claude is essentially just saying, I am a generic AI. You just happen to give me a bunch of APIs with this.
Speaker: MCP layer. I may or may not use those APIs. I may or may not actually do the validation. I may hallucinate if I feel like I'm... I don't have any fiduciary responsibility. I am not a regulated entity.
Speaker: So the big difference between a cloud and a broker is cloud doesn't have to be right. They are giving this tool almost as a service by saying use it at your risk and you will have to Decide when it's right or wrong.
Speaker: Is anyone in the industry making that bet that, okay, I will allow people to connect their cloud? to buy Infra. And. I will just be the Rails.
Speaker: So um um all of us have, I think, um you even Sahi. We have an internal MCP. In fact, we'll be launching our external MCP within a few weeks. So anybody can plug in their MCP into cloud or open AI.
Speaker: and they can analyze it. And of course, other brokers also have, I know ah many discount brokers have also launched their MCP. So, I don't think we ah people will not... participate I think people will provide it.
Speaker: But the um risk... that customers need to understand is that When you use an open product, That is not. Um, Like...
Speaker: you know tested battle -tested for... the specific need. you'll end up with results that are very... Um, you know In some sense, ah I wouldn't say average, but I would say very unpredictable.
Speaker: I feel like this should benefit you because you are at half the price of... the other brokers. Um, If you... uh, encourage people who are just looking for rails to i mean because when When the only thing they need is Rails, then the UI, the all the other stuff.
Speaker: ah doesn't matter, right? it's all invisible and then only the price matters and when only price matters then I feel like. You would be in a sweet spot there. So... True, if you look at it purely from like a Broker backward use case, I would say, yeah makes sense. It's 50 % cheaper.
Speaker: We would. be of course you know, easily preferred option when everything else is ah equal. But... Frankly, I look at it from the customer lens first. And my grounding in Amazon and Swiggy has always been like, let's worry about the customer.
Speaker: I mean, I look at ah the work we are doing at Cairo and I know that because over the last few months, the team has been working on a daily basis, just focused. on spending a lot of time and effort in trying to make Cairo accurate.
Speaker: and make Cairo consistent. right and That work is where it is very deeply tied into the constructs of what the broking product. it is what is the meaning of these different terms what is the metadata for example if somebody says Create a GTT order.
Speaker: Now, does cairo does Does Claude understand it? And if it does understand it, does it know exactly what variables to use to be able to set that? Now, that's a very specific term. But somebody who does broking will understand. So as a user, you don't have to worry about whether this AI gets me or not because it is purpose -built.
Speaker: Can you to have Cairo as an interface that when I'm placing an order, I don't need to navigate to the right section, et cetera, et cetera. I can just tell Cairo by... Uh, Swiggy shares. or Yeah. Absolutely. absolutely So that that that is absolutely how we look at it. right So rather than say, let's um let's switch and give...
Speaker: Control. to a third party AI. um Because there, i mean i As you said, for me as a broker, it doesn't matter. I still make money. But I worry more about the customer who may end up getting some wrong result and may decide to buy or sell.
Speaker: ah based on that. So. if Rather than do that, I would rather see a world where within the broker app, you have an experience, either it is through voice. all through chat.
Speaker: Imagine a world where even on Sahi, you don't even have to type anything. You just speak to Cairo on Sahi. you Now you you can say, like what's the current price of Reliance and you know what is my portfolio looking like?
Speaker: Okay, can you please buy 10 more of Reliance? Now again, because we want to be... um a responsible AI, we are not going to automatically execute.
Speaker: we will display a prompt to the user. showing them the details and expecting them to give an explicit confirmation. But you can imagine a world where I don't have to go to the order firm at all.
Speaker: Right. and i can how far is that So today on Cairo Today, within the chat, you can already do this. we have built these widgets where i can buy from within cairo i can say can I can literally do this conversation we just talked to about, I can go to Cairo and say, What are some of the defense talks that are...
Speaker: ah interesting. And then Cairo will pull up a bunch of stocks. And then I can ask it questions about the P and &L. in the balance sheet Then I can go on to say, why don't you invest?
Speaker: one lakh rupees in this thing. Cairo creates within the chart, it creates a nice beautiful little ah confirmation message saying here is the amount quantity. And then I have to tap on buy.
Speaker: Right there, it executes because it, again, connects to our backend, all our APIs. and then it says you're done. So... I don't need to leave Cairo to... go anywhere. I can even, by the way, go back into Cairo and say, hey, tell me about my position I bought yesterday. How's it doing?
Speaker: And I can just continue chatting with Cairo. So the future world that I envision is that you'll have... traders obviously who are trading using the charts You'll have traders who are trading using some kind of fundamental data, but you'll also have traders using Cairo.
Speaker: who will only be Cairo first. The next generation of users may just... use Cairo to start and end their day. They may never see the rest of my app. And that's okay.
Speaker: you know and And we internally talk about how... With Sahi, we disrupted the market by building our own charts. And we essentially pioneered single screen trading on the mobile device.
Speaker: but frankly with cairo we may be disrupting ourselves. What is this? I didn't understand this single chart. ah like build your own charts and this so single screen trading single screen trading is um you know um So when you look at...
Speaker: the current experience on most of the brokers. um Most large brokers. In fact, pretty much... All of them. We're using a third -party charts engine, TradingView.
Speaker: ah which is a US -based charting engine, and they were embedding it within the Broking app. And that'll just show price movement over time. yeah yeah that shows the nice beautiful you know candles So it's a great tool. It's a great tool for analysis.
Speaker: But... Because it's got the US roots, it was a desktop first. tool. um And the US is still a very desktop -first market. ah But when you look at the experience on the mobile, what we saw and we experienced while using these products is that if you are a trader who's trying to look at a certain chart and then you want to place an order. And then you want to manage your position. You are jumping between multiple screens within.
Speaker: ah your mobile app. And that's just a lot of effort because you are doing this while you are moving. The second issue we also saw is that The charts, because they are third party charts, they're actually quite slow.
Speaker: ah While the rest of the broker app may be using the latest app technologies, this is an embedded... you know web view which sits within the app. And so from an experience perspective, it takes time to load. And when the users are waiting to load, the market has moved.
Speaker: So we took... We took this call to say, let's like completely skip. using this third party product. Let's build our own charts internally. And that's where we invented this.
Speaker: Charting technology, we call it Sahi Charts. ah which allow people to see the entire price movement right on their phone it also works on the desktop it also works on tablet So it's a multi -device compatible engine.
Speaker: And it also has its own tight integration with the backend in terms of data and auto -execution. So... what With that, charting tool, we were able to build this user experience which is a single screen experience.
Speaker: So what we said, let's completely remove the need for people to switch screens. Let's make sure that everything they need is into one single screen. And that allows the user to focus on the screen and remain in the flow while they are trading.
Speaker: Right? And that's one of the things that is really... become the reason for why Sahih has grown so quickly. people who have traded who realize how much of effort and complexity is involved.
Speaker: they have switched to sahih because of the single screen trading experience So ah can you share some numbers about the business? What kind of ARR? What number of users that you have currently?
Speaker: Yeah, so we don't share ARR, you know, it's a little bit of a, because it's a private company and so on. But in terms of user base, so in the last 18 months, we have onboarded about 6 lakh. DMAT accounts.
Speaker: ah We are one of the fastest growing... brokers in India in the last um, I would say it's almost six months now, we have been in the top three. in ah new account additions right behind ah Grow.
Speaker: And ah from a... All right. Traded base perspective, we have about two and a roughly .5 lakh. Active. Traders.
Speaker: uh trading uh you know when we look at the uh metrics in terms of where does that put you in the ranking So, he puts us at number 18 right now. okay okay in the list This is across all brokers, both bankers as well as the discount brokers. so we are like okay Number 18.
Speaker: um Yeah, um and... Again, from a frequency and engagement perspective. you know, whatever data we have got and internally benchmarked, we seem to have above market average.
Speaker: ah performance both in terms of the customer retention as well as in terms of customer usage, the frequency at which these people use our product and they come back to the product. So the mouse and the DAOs.
Speaker: All of them are in a beating. the market average. Amazing. Amazing. Thank you so much for your time, Dale. It's been a pleasure. Thank you so much, Akshay. Thank you so much for this conversation. It's been great.
