How much are you spending on trading? Technology dragging trading costs lower

Nikhil Kamath

The cost of investing in the stock markets has reduced drastically over the last decade. Numerous factors have affected this change, but none as important as innovations in technology that have allowed brokers and regulators to improve efficiencies in every aspect of their businesses.

There are a few basic charges that make up the bulk of trading and regulatory costs that apply to the Indian scenario. Listed below are some of the main points.

Novel technology and architecture have greatly reduced the need for sales and support staff, thus allowing market participants to offer their services at a fraction of the cost than they could earlier.

While better trading and self-service platforms have reduced the technical support burden, introduction of form-filling and account opening online etc. have greatly reduced the manpower that would've otherwise been necessary.

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Discount brokers have especially leveraged technology and automation to reduce the number of brick and mortar offices and manpower required for the running of the business.

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The banking sector, for example, has seen enormous strides in digitising the sector, cash withdrawals and chequebooks, for example, are completely obsolete now, these advances in technology will definitely drive costs even lower.

Speaking specifically of trading costs the advent of online trading has been the biggest factor in reducing trading costs, the ease with which transactions are conducted and cleared online has reduced the cost per transaction to less than a fragment of what it used to cost a decade ago.

Another significant development in this sector has been increased ease in accessing the internet. Accessibility to Smartphone's and lower internet tariffs have played a huge role in connecting investors to the various online brokers and platforms that are available out there.

This has opened the markets up for brokers to compete on a level playing platform, without necessarily investing huge amounts towards building an extensive distribution network.

This, in turn, has also helped the broking ecosystem become more efficient and reduced costs for retail investors.

Disclaimer: The author is Co-founder & Head of Trading, Zerodha. The views and investment tips expressed by brokerage firms on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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