Nithin Kamath launches virtual contract note to curb overtrading

Zerodha CEO Nithin Kamath.

Zerodha CEO Nithin Kamath has cited overtrading as the biggest reason behind active traders losing money. Low brokerage costs often push investors to invest more and in the stock market, and the more one trades, the higher is probability of loss, according to him.

"Overtrading is one of the biggest reasons why traders lose money. It might sound weird coming from me, but low brokerage costs can trigger people to trade more," Kamath said in a Twitter thread.

While how much brokerage one pays is limited for each order, other charges like STT, exchange transaction charges, stamp duty and impact costs are levied as a percentage of the turnover and these can rise exponentially with the volume of trade one carries out.

Zerodha has shared a virtual contract note that Kamath hopes will likely act as a deterrent.

Market regulator Sebi recently mandated all brokers to start displaying charges while placing an order, helping traders and investors get an estimate of the charges they would be paying upfront. While this is helpful for someone placing fewer orders, for someone who trades throughout the day, it isn’t, as the charges you see are only for that particular order.

For this set of traders, the best way to give them an estimate of charges is to show the charges for all the orders placed during market hours itself.

The virtual contract note will show charges for all the orders you have placed during the day. Investors can see the virtual contract note in the Orders tab on market-oriented social media site Kite. This provides the details of brokerage, STT, exchange transaction charges, stamp duty, Sebi turnover charge, and GST for orders placed during the day, along with order-wise charges.

At present, the feature is live only on the web and will soon be available on the app as well.