The hunt for the right broker for futures and options trading

F&O trading is a high-risk business and new investors. (Photo: Mint)
F&O trading is a high-risk business and new investors. (Photo: Mint)


Apart from brokerage and other trading features, investors should watch out for software glitches and stability.

Trading in futures & options (F&O) is indeed risky for retail investors, if data put out by the market regulator Securities and Exchange Board of India (Sebi) recently is anything to go by. A detailed analysis by Sebi showed that 90% of active individual traders in the F&O segment suffered losses in FY22. This figure was 87% in FY19.

The study highlights the growing interest of individual investors in the F&O segment ever since the pandemic struck in 2020. Millions of people confined to their houses amid the lockdowns— and inspired by finfluencers—flooded the stock markets in search of easy money, despite the inherent risks. Thus, a record 14.2 million new demat accounts were opened in FY21, three-times higher than the previous financial year. Most of them were by DIY (do it yourself) investors who wanted a piece of the F&O action.

F&O trading is a high-risk business and new investors, many of whom relied on online course subscriptions, suffered losses. Market experts say it is important to hire a good broker if you decide to dabble in the F&O segment. But, choosing the right broker is not an easy affair either. For one, there are a large number of brokers today offering competitive brokerage. Also, discount brokers alone used to hitherto offer flat brokerage, now even full-service brokers do that. Discount brokers are stockbrokers who carry out buy and sell orders at a reduced commission rate. Unlike full-service brokers, they do not provide personal consultations, financial advice, tax planning, or research and analysis.

Brokers today also offer a range of features such as option strategy, API (application programming interface) for trade automation, advanced option chain, etc. You need to look for brokers who can offer the best features for your trading requirements. Do take note of trading glitches in the software offered by brokers.

Mint speaks to some F&O traders for their insight on how they utilize the service of brokers.


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Discount brokers

Bengaluru-based Sandeep Rao, 43, a fintech executive, says he has had an account with brokerage firm Zerodha since 2011. Rao, who has been trading in the F&O segment through Zerodha for the last 10 years, loves the firm’s smooth UI (user interface) and access to the Zerodha ecosystem.

Another advantage with Zerodha is the MProfit tracking app which allows one to track investments across different assets and platforms. “As Zerodha is one of the investors in MProfit, it is well-integrated into the system," he says. Rao says he is sticking with Zerodha for the reason that he has also built a sizeable investment portfolio with the broker over the years

Yet, Rao says there are a few things about Zerodha that he hates. For instance, the firm charges 2,000 per month for its API (application programming interface), which is usually used by traders for automation of their trading strategies. “While Zerodha’s API is reliable, most brokers today don’t charge any additional fee for API," he says.

He cites the example of Dhan, which doesn’t charge for the API. He uses Dhan occasionally as a back-up for trading. “I like Dhan as it keeps adding innovative features after getting feedback from traders. But the software it uses will need to be optimized."

Rao says that he has faced some software glitches even on Zerodha, but fortunately he has not had to face any losses because of that.

Mumbai-based Viraj Batra, 24, has just started trading in the F&O segment. A financial services professional, Batra has opened an account with Upstox. He initially used the account for investments but started using it five months back for F&O trading.

Batra, who says he has so far not faced any major issue on the platform, is a fan of the low brokerage it charges and its user interface. To be sure, Upstox users have also faced software issues in the past.

Full-service brokers

Pune-based Tushar Karmakar, 27, has tried several brokers in the recent past. He started using Zerodha for F&O trading in 2020, but after some restrictions on trading in out of the money, or OTM, contracts (OTM contracts are those that are farthest from current index levels), he shifted to Upstox. When he faced issues with accessing the Upstox account for trading on Budget day, he moved to Fyers. He used the broker till October 2022 when he faced hurdles in placing orders from his account. He claims that there were delays of 5-7 seconds even for an order modification.

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Karmakar, who has since shifted his loyalties to Kotak Securities, says he is in awe of the Kotak Neo mobile app and uses it to key in most of his trading orders. “I like their user interface, and the overall experience has been good. Also, I have taken zero brokerage plan in Kotak Securities," he says.

At Kotak Securities, investors below 30 years of age can opt for the Trade Free Youth Plan for an initial two years. They need to pay 499 for the first two years, which offers zero brokerage across segments. Traders also have to bear an annual account maintenance charge of 600. After two years, they are moved to the regular Trade Free Plan, which is open for all. Here, a flat fee of 20 is applicable per order in the F&O segment. Karmakar adds that he faced software glitches at Kotak Securities soon after opening his account (in December last year) but didn’t suffer any losses.

Mumbai-based Tulika Mall, 32, is a full-time trader in the F&O segment for the last three years. She uses ICICI Direct’s platform to place her trades and is very happy with its low-brokerage fee. She has subscribed to both ICICI Direct’s Neo and Prime plans, and pays 20 per lot in brokerage.

As a full-service broker, she has access to the relationship manager (assigned to her due to multiple family accounts and large volumes) as and when required. She claims to have faced order lags in the broker’s software, but doesn’t mind it for now. A well-established financial services brand and a personal RM, just a call away, matters. “We are trading with huge volumes of money. So, brand comfort is equally important for us," Mall says.

Mall says she goes through the brokerage’s research reports emailed to her for actionable insight if any stock piques her interest.

What to consider

Trading in F&Os is not suitable for everyone. It requires both large capital and deep understanding of how F&O pricing works.

Those looking for brokers to trade in the F&O segment should check for reports of frequent glitches in the software used by the broker. It is not uncommon for such glitches to occur especially on big event days (such as during the Union budget, elections) when market trading volumes are high. If you can’t exit a position with your primary broker at the right time due to a software issue, it can turn your profits into losses or limit your ability to minimize losses on an already loss-making position.

Having a secondary broker might be useful as well. For example, you can place a counter trade with the secondary broker to hedge against the position on your primary broker.

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