Fisdom goes subscription based

One strategy that Fisdom plans to adopt is to target the aggressive traders. This is the segment of the stock market that aggressively churns the money and does multiple transactions at short spreads. The big challenge for this group is price and Fisdom plans to offer subscription-based model. Here a fixed sum will be charged in a month and will allow an unlimited number of transactions. It would turn out highly cost effective for the aggressive trader class in stocks. 

Competing with zero brokerage

The subscription model is a low-cost model but it structurally differs from the traditional zero-cost or low-cost model. The traditional low-cost model followed by brokers like Zerodha, Upstox and the likes of 5paisa.com focuses on making the aggressive traders subsidize the delivery traders. What Fisdom is offering is the exact opposite. It will cater more to the interests of the aggressive trader where they only pay a fixed sum of brokerage and trade infinite amounts. Only the statutory charges will be levied on actuals. How does this type of model fit in and what should be the approach of the other brokers in Indian markets? 

Dichotomy is narrowing

The gap between the research based full-service brokers and the low-cost broker is narrowing. The new model that the likes of Fisdom plan to follow is to offer access to research on over 3500 companies with appropriate screeners. The big bet in low-cost broking is that the per capita loss will not be palpable when the number of participants are huge. It is going to be a real challenge for the existing brokers as most will now have to either run with the hares or hunt with the hounds. It is therefore hardly surprising that most full-service brokers are also adopting the low-cost model through the back door route. 

Risks in the emerging model

It is easy to assume that with solid risk management and tight controls, the risk can be managed. But there are two major risks in this new model. The stock markets have been on a virtual one-way drive over the last 6-7 years. So, a lot of these low-cost models look smart. The success of the low-cost model is not only based on low rates but a steady stream of customers. The day that flow stops and other asset classes look more attractive, this low-cost franchise will start to look vulnerable. Behind all the heady statistics, the new broking model is based on unlimited clients and almost non-stop flows. As we have seen in the past, it does not long for both these assumptions to go for a wild toss!