The pandemic era, especially the years 2020–2023, brought about a historical surge in the Indian stock market, primarily driven by retail participation. But to understand why this happened, we need to look at the history and evolution of India’s broking ecosystem.
The Traditional Era: How Stock Broking Worked (Pre–2010)
For decades, investing in Indian equities was an exclusive affair with numerous entry barriers:
- Physical paperwork and manual trades: Before 1999, trades were manually executed on stock exchange floors using physical share certificates.
- Limited access: The broking industry was dominated by a handful of full-service brokers, and opening an account involved copious paperwork and compliance.
- High costs: Brokerages charged based on transaction value — often 0.5% to 0.7% of the amount traded, making it cost-prohibitive for small investors.
- Distrust and inertia: For most Indians, the markets were either inaccessible or seemed too risky due to the lack of information, trust, and high fees.
The Dawn of Discount Broking (2010–2017)
The advent of platforms like Zerodha and Upstox marked a revolution in broking:
- Flat-fee model: Instead of percentage-based brokerage, these platforms offered flat fees — as little as ₹20 per trade — irrespective of trade size.
- Online access, but offline onboarding: Early discount brokers still required investors to courier physical documents for KYC (Know Your Customer) verifications, discouraging many.
- Market expansion: Though the cost and technology barriers dropped, growth was limited due to the friction in the onboarding process.
The Game Changer: e-KYC and Digital Transformation (2017)
2017 marked a watershed moment in Indian broking history:
- eKYC rollout: With complete digital onboarding, any Indian with internet access could open a demat account in minutes, from anywhere.
- No paperwork headaches: This process removed a huge psychological and operational barrier, accelerating account openings.
- Massive democratization: For the first time, millions could enter the markets without the friction of paperwork.
- Impact: The real growth phase of discount broking began in earnest, and companies like Zerodha and Upstox saw explosive customer acquisition from 2017 onward.
2020–2023: Pandemic Frenzy and the Power of Options
The arrival of the COVID-19 pandemic in 2020 changed everything:
- Lockdowns = Free time: With people confined to their homes, many turned to trading for excitement and earning potential.
- F&O boom: While the cash market saw new participation, it was the Futures and Options (F&O) segment that witnessed truly insane growth.
- In 2019, the F&O market’s daily volume was Rs 217 lakh crore.
- By 2024, it soared to Rs 8,740 lakh crore — a more-than-40x jump in just five years.
- India’s global share of the derivatives market hit 61%, surpassing the rest of the world combined.
- Weekly Options: NSE introduced weekly option expiries on various indexes and reduced contract sizes. This made options trading more accessible to small-ticket retail traders, causing a stampede.
- Result: Option trading became the “game” for everyone from college students to housewives. The excitement, leverage, and stories of overnight riches attracted both serious and casual participants.
Who Made Money? Winners and Losers
The Retail Mirage
Despite increased retail participation, most individual option traders didn’t make money; in fact, the majority lost. Still, the systems facilitating trading became goldmines for those running the facilities.
Brokerage Profits: The Golden Period
- Broker bonanza: Discount brokers, especially leaders like Zerodha, Upstox, and the publicly listed Angel One, made stellar profits.
- Zerodha’s net profit for FY24 was Rs 4,700 crore, with profit margins above 50%. More than 70% came from their F&O business.
- Angel One shot up from Rs 80 crore net profit in 2019 to Rs 1,126 crore in 2024.
- As more players (including fintech apps and even non-finance businesses) launched broking arms, competition intensified, but so did industry profits as a whole.
- Profit party: Everybody wanted a piece of the broking pie — but it would not last forever.
The Ultimate Winners: Government and Institutions
But even brokers did not take the biggest share.
- 1. The Government
- The government’s income via taxes (especially Securities Transaction Tax or STT, stamp duty, and capital gains taxes) dwarfed brokerage profits:
- In the last year alone, the government collected
- STT: Rs 53,000 crore,
- Capital gains: Rs 99,000 crore,
- Total indirect taxes from trading: ~Rs 2.5 lakh crore.
- This means the government earned outlandish sums from the trading boom, often outstripping what brokers made.
- 2. Institutional Traders
- Proprietary institutional firms (e.g., Jane Street) have also reportedly extracted billions via algorithmic and high-frequency trading during the boom, using sophisticated systems retail investors can’t access.
The Downturn: How Things Went South in 2024–2025
Saturation, Overcrowding, and Maturing Market
- The euphoria sparked by pandemic-era retail interest began to cool as the market became crowded, and easy wins grew rarer.
- The huge growth in trading volumes was not matched by returns for retail investors.
- Many new retail traders faced losses, especially in options, leading to disappointment and dropout.
- As the market matured, brokerage firms could no longer count on a constant stream of new, hyperactive traders.
SEBI’s Hammer: Regulatory Clampdowns
Indian regulators, especially SEBI, were watching the boom and rising retail losses with concern. Several new regulations landed between 2023–2025:
- Increased margin requirements: Coverage ratios for F&O trades were raised, which curbed high-risk trading practices and squeezed retail activity.
- Tighter risk and funding norms: Brokers had to implement stricter compliance checks, reducing the “easy money” flows.
- Upfront margin rules: Forced traders to put up more cash for every position.
- Options trading rules: Several curbs made options less seductive for small-ticket traders, especially those with little sophistication or capital.
- End of payment for order flow (PFOF) practices: Some brokers lost an “invisible” revenue source here.
Impact on Broking Firms
- Profit hit: Amid regulatory tightening, broking profits began falling. For example, Angel One’s profit crashed by 60%.
- Cost pressures: More compliance increased fixed costs for brokers, just as their customer acquisition engines slowed.
- Consolidation pressures: As weak brokers faltered, the industry tilted toward a few dominant names.
Leader Warnings
Zerodha’s Nithin Kamath famously declared, “Good times are over,” reflecting broader industry sentiment. The sector is bracing for turbulence.
Key Problems Facing the Industry in 2025
1. Regulatory Overhang
With SEBI tightening norms, especially for risky F&O segments, brokerages face continuing uncertainty on rules, margins, and permissible product structures.
2. Shrinking Retail Profits
- Most retail traders, especially those in options, lose money. Awareness is spreading, and trader churn is rising.
- Brokers’ F&O-driven profit pools are shrinking as retail enthusiasm wanes.
3. Intense Competition
- Free or quasi-free broking (low to zero fees) is now industry standard, squeezing margins.
- New fintech and non-traditional players (UPI apps, lending businesses) jumped in—intensifying competition, poaching customers, and burning marketing money.
4. Increased Costs
Every extra compliance or technology requirement raises brokers’ fixed costs, squeezing profits, especially for smaller outfits unable to invest in large systems.
5. Customer Education and Risk
Regulators and media focus on horror stories of leveraged retail losses. There’s growing pressure for brokers to provide more responsible user education and risk warnings, which can reduce speculative turnover.
6. Data and Technology Arms Race
Winner brokers are those investing in algorithmic execution, instant KYC, fraud detection, and app usability. Lagging on tech means losing relevance.
7. Changing Taxation and Government Policy
Frequent tweaks in STT, stamp duty, and capital gains create planning uncertainties for brokers and customers alike.
What’s the Broking Industry’s Future?
Will The Industry Recover? Or Are Golden Days Over?
Reasons for Hope:
- India’s investor base is still small compared to global markets. There’s room for long-term growth as Indians get wealthier and financialization deepens.
- Tech innovation is ongoing. Algorithmic trading, AI-driven advisory, and easy-to-use super-apps will attract new users.
- Rise of Investment Awareness: As earlier waves of undisciplined speculation give way to responsible investing, long-term mutual funds, ETFs, and SIPs could drive new waves of account openings.
But Big Pitfalls Remain:
- F&O party is likely over for brokers. High-growth days of option-fueled trading frenzies are probably past.
- Margins and growth rates will shrink. More sustainable, efficiency-focused business models will be needed.
- Stronger regulations and risk controls. These will benefit disciplined investors, but curb speculative excess.
Industry Adaptations Underway
Leading brokerages are already adjusting by:
- Pivoting to value-added services (advisory, research, portfolio tracking)
- Offering educational content to retain and convert customers
- Expanding into wealth tech—mutual funds, insurance, lending
- Investing more in compliance capabilities and automation
What Should Investors and Traders Do?
For Investors
- Reevaluate strategies: The age of “easy” trading profits via options is ending; sustainable wealth comes from discipline, research, and patience.
- Prioritize learning: Leverage educational programs and resources to understand market risks.
For Aspiring Professionals
- The broking industry itself remains a viable career, but success increasingly relies on tech skills, risk management acumen, and adaptability rather than pure sales or basic trading knowledge.
For Existing Brokerages
- Double down on transparency, trust, and client support.
- Prepare for wave of regulations, and partner (rather than resist) with regulators to create a sustainable future.