Does a discount broker like Zerodha can really make a profitable business by offering trades at ?20?

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Hard to believe but YES they are making excellent profits by keeping the cost very low and by the increased volume of trade by customers. Here is how the discount brokerage is a profitable business in short as well as in long-term:

A discount broker like Zerodha focuses on core brokerage business.

  • They keep their operation cost really low by not offering services like research, margin funding, local branches etc.
  • They invest in technology and encourage online trading through mobile, web or installable trading terminal. Zerodha focuses on online traders and does so by being mostly online and with centralized operations in Bangalore.
  • Reduced brokerage allows traders to trade frequent which intern to increase the volume. Stock exchanges offer incentives to the brokers for high volumes as it increases liquidity in the markets.
  • Almost zero spending in advertising saves big amount for Zerodha. In initial 6 years, their customer referral model worked really well for them. The customer referral program did enable its customers to refer friends and earn 10% of brokerage paid by their referred friend. Note the customer referral program was discontinued in mid 2018.
  • Zerodha has other source of earnings including:
    • Interest earned on the money customers keep with them. This contributes to over 25% of its revenue.
    • Demat account charges
    • Call & trade charges
    • Part of exchange transaction fee
    • Monthly fees changed for add-on trading tools offered.
    • Commission when customer applies for corporate FDs, NCD and bonds.


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