Nithin Kamath of Zerodha reveals the biggest challenge for stock brokers; find here

One of the biggest challenges for stockbroking platforms isn't acquiring new customers—it's ensuring they stay invested, according to Zerodha co-founder and CEO Nithin Kamath. In a post on X, Kamath said retaining users is "really, really hard" because many investors eventually lose money and stop participating in the markets.

According to Kamath, the issue extends well beyond the high-risk futures and options (F&O) segment. Even investors who participate only in the equity market often end up exhausting their trading capital, making customer retention one of the biggest challenges for brokerage firms.

"The reason is that most users eventually end up blowing up their accounts. And this isn't limited to F&O; it happens in equities as well," Kamath wrote.

He added that this creates a difficult business dynamic for brokers, forcing them to continuously acquire new customers simply to maintain their existing active user base.

"So, you have to keep running just to stand still, to maintain the number of users on the platform and ensure that the business remains steady," he said.

Why Zerodha's user base stands out

Sharing insights from the company's internal analysis, Kamath said Zerodha found that around 55%-60% of its users remain active, defining active users as those who continue to hold investments in their accounts.

While he did not disclose the exact number for the industry, Kamath said the brokerage's proxy data suggests that the proportion of active users across the broader broking industry is "much, much lower."

"We were looking at some statistics, and one of the surprising things we found was that roughly 55-60% of our users are still active. By active, I mean people who have holdings in their accounts," he said.

Kamath attributed part of Zerodha's relatively higher retention to the company's unique customer acquisition strategy. Unlike many competitors, Zerodha has largely avoided paid advertising since its inception, relying instead on referrals and organic growth.

According to him, this has resulted in a customer base that is generally more engaged with investing and trading. He noted that platforms spending heavily on advertising often attract a large number of new users who may open accounts but remain inactive or trade only occasionally.

"This may be partly due to the fact that we have never advertised and don't have a lot of new users who typically don't trade and invest much," Kamath said.

His comments come at a time when India's broking industry is grappling with slower client additions following tighter regulatory norms for derivatives trading and growing concerns over retail investor losses. Kamath's observations highlight a lesser-discussed aspect of the brokerage business—that long-term success depends not only on attracting new investors but also on ensuring that existing clients continue participating in the markets over time rather than exiting after suffering losses.

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