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Utsav Kapoor (Student)     28 July 2021

Retail Algo Trading Scam Details

Algo Scam Details by Utsav Kapoor
 

Table of Contents:
A. INTRODUCTION
B. MECHANISM OF OPERATION - TECHNICAL ASPECT
C. MECHANISM OF OPERATION - FINANCIAL ASPECT
D. SIZE OF SCAM
E. METHODOLOGY OF SCAM EXPOSURE
F. MY PERSONAL STORY

A. INTRODUCTION
Retail Algo Trading is a illegal practice in which retail investors are lured to authorize a computer program, to create buy and sell orders in a fully automated manner, without any manual supervision. The computer program automatically generate orders and sends them to exchange, and also manages current positions/orders for liquidation or scaling-in. The set of rules used to generate orders or modify them is called a Strategy or Algo. Tradetron, the biggest player in this scam, is a company registered in US to dodge Indian laws, and currently has 350 algos in its public marketplace out of which none are approved or audited (Ref-1). India's largest broker Zerodha, acknowledges that Exchange approval is required for Algo Trading (Ref-2), but also cunningly facilitates it without any approval system.
The scam is mostly operated by Trading Members of National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi Commodity Exchange (MCX) and National Commodity and Derivative Exchange (NCDEX). For the purpose of brevity, this prima-facie report informs only about the NSE Trading Members who are involved in scam.

B. MECHANISM OF OPERATION - TECHNICAL ASPECT
(1) NSE Trading Members (TM) recommend APIs to investors which do not require manual authorization for sending each order to market. As per NSE norms, any application from which orders originate should be approved by NSE before recommending to investors. However, TM do not put a approval system in place for APIs. TM did not put the most basic form of approval -asking screenshot from investors about the ATS they are using - to disallow violating ATS. On the contrary many TM recommended ATS openly to investors, while some recommended ATS cunningly through their Sub-brokers. (Ref-3)
(2) The Partners, Sub-Brokers and Authorized Person who take brokerage share from TM are collectively referred as "SB". The TM facilitates SB to provide ATS, so that TM can dodge SEBI regulations for Algo Trading. Some brokers ask SB to signup as Partner for brokerage sharing, to dodge SEBI compliance for SBs.(Ref-4).
(3) The APIs need login credentials given by TM for authentication before sending orders. However, the ATS programmatically save the login credentials and auto-login daily into investor accounts, to discourage investors from actively supervising orders placed in their accounts. (Ref-5)
(4) The ATS allows on a single device (laptop, tablet, mobile) multiple trading accounts, just like a dealer, to incentivise psedo-SBs. Some ATS like Tradetron do it slyly calling it "multiple deployment", while some ATS like Stoxxo do it openly. This violates SEBI regulations that any SB should be registered with SEBI. (Ref-6)
(5) The ATS allows as aggregating platform for TMs in which each order can be routed to different TM. This is against NSE norms because it does not keeps networks separate of different TM. (Ref-6)
(6) The ATS also dole out financial advice, with promises 15% or more return per month to investors. This is again violation of SEBI mandate that only a Registered Advisor can provide financial advice. (Ref-7)
(7) The TM leaks out clients stocks transaction data (buy/sell orders) to ATS, because all orders are generated and managed from ATS server only. This is against NSE norms for not following a approved network diagram for order placement.
(8) The ATS does not make any disclosure about their proprietary trading, even though acting in the capacity of a financial advisor.

The above violations, with many other, help them to execute financial aspects of scam.

C. MECHANISM OF OPERATION - FINANCIAL ASPECT
(1) At any point of time, 80% of investors are losing money but 20% are making money by sheer randomness. Since all trades happen from ATS servers, SB has information which investors are making money. SB takes testimonials from these 20% investors, then use testimonials for marketing algo services.
(2) These ATS makes money from platform subscripttion fees (250 to 15000 per month). (Ref-8)
(3) The ATS makes money from brokerage, by also operating in the capacity of SB. SEBI regulations prohibit one person for being SB with more than one TM. This rule is easily dodged by registering as SB in the name of friends, family and colleagues. Mr. Umesh Ranglani, Tradetron's founder, is a SB of MasterTrust. MasterTrust sends recommends Tradetron to investors, and the brokerage generated comes back to MasterTrust. A large number of Tradetron's strategies do churning trades to extract brokerage from clients.
(4) The ATS strategies automatically trigger orders from 1000s of investor accounts for rigging or spoofing stock prices. This allows them frontrunning client orders or taking counter positions depending on the price trend triggered by the strategy. 
(5) ATS also makes money in proprietary trading accounts from the top 1% strategies which are genuinely profitable and submitted by retail investors to these platforms for execution. The investors cannot suspect because any disclosure is not made by ATS.

D. SIZE OF SCAM
Currently, more than 60 NSE Trading Members are recommending APIs to investors; and, more than 50 Algo Software are being recommended to investors. Between the period July 2020 to June 2021, around 5 lakh retail investors have been lured into algo trading, out of which Tradetron alone has signups of close to 1 lakh investors.

Assuming the average amount of money lost by a investor in this scam is Rs. 10000, a cumulative amount of Rs. 500 crore has been lost by investors over last 12 months alone. Most of the algo platforms were started in mid-2018 itself. Based on the growth in number of brokers recommending APIs to investors, the cumulative loss in last 3 years has been Rs. 1000 crores.

E. METHODOLOGY OF SCAM EXPOSURE
Even though I was personally cheated by ATS, active help from a NSE Auditor was taken to understand SEBI/NSE Guidelines before jumping into conclusions. Once the violations by TMs were clear, email correspondence was sent to 14 such TMs on 19-07-2021, keeping NSE/SEBI also in loop. In reply, the TMs either dissociated themselves from ATS, or ignored the email entirely. The TMs who dissociated themselves from ATS were asked why they are recommending ATS to investors. There were no further replies received from TMs even after four reminders sent between 19th July to 26th July. Notable replies are summarized below:
1. Zerodha: Dissociated itself from ATS but did not reply why it allows unapproved ATS 
2. MasterTrust: Dissociated itself from ATS but did not reply why it recommends Tradetron to investors
3. Zebu: Dissociated itself from ATS but did not reply why it recommends Stoxxo to investors
4. AliceBlue: Dissociated itself from ATS but did not reply why it recommends Tradetron to investors
5. CompositEdge, RKSV, Nirmal Bang, IIFL and Angel Broking denied to reply until contact details provided
6. SAMCO, Tradewings, Arham and 5paisa did not reply at all after multiple reminders

F. MY PERSONAL STORY

I am Ustav Kapoor, a resident of Chandigarh. I lost my high paying IT job in April 2020 due to pandemic. I am IIT alumni software engineer. Life was comfortable and I just decided to learn new skills and try something higher in life. I had a decent FDs saving of 25 lakh.

This is when someone contacted me from Bangalore based company called MarketCalls. They seemed to be well placed and promised disciplined stock trading. Mr. Ranjendran, the founder of Marketcalls, appeared regularly in conferences promoted by stock brokers. I paid them aprox 1.2 lakh in course fees to learn about stock trading strategies. They later launched "advanced, high-tech, server-based " platform called Algomojo for trading. This software allowed server based algo trading without any supervision at all. As an "icing on the cake", they provided several trading strategies. I gradually lost Rs. 8 lakh in trading over next 4 months with Algomojo, additional to the course fee of 1.2 lakh.

Dejected, I was recommended on internet forums a "disruptive" app called Tradetron which will make for you 20% or more returns per month from stock market. Tradetron has duly filed US Patent for its "path-breaking" technology and is a U.S. registered company. This was another server-based app for algo trading which did not require any manual supervision.

Tradetron was more lethal than Algomojo, because it offered "strategy marketplace" by almost a thousand self-acclaimed trading gurus. Each strategy promises spectacular returns in the best of intellectual presentation to appeal any scientific mind. Tradetron's User Interface (UI) is addictive and beautiful like an online gaming portal.

Between September 2020 to February 2021, I lost over 20 lakhs with Tradetron. Overall, from algo trading my entire savings in FDs wiped out, plus additional savings from PF.

Was I foolish to lose so much money? I assumed yes. These algo platforms are commonplace and supported even by celebrated entrepreneur unicorn Zerodha. I opened account and traded with half-a-dozen brokers between April 2020 to Feb 2021, and all of them recommended algo trading. I accepted all the losses as my own mistake for not being intelligent enough to make money from stock market. This belief was triggered by educational propaganda from these algo platforms. I started searching again for IT job and joined a company with 70% of the salary from my previous job. This salary loss was due to one year gap and also being away from my job skills.

Out of interest I researched deeply and found that these algo platforms are ALREADY flouting the norms set forth by NSE and SEBI. Yet no one talks about the violations. Surprise! I was not foolish. I was cheated by these algo platforms in syndicate with stock brokers. My broker IIFL has been calling me (cold call spamming) several times to inform about another new "path-breaking" platform called Algobaba. So, I also researched about this new entrant and started to chase 14 stock brokers who promote algo platforms.

MasterTrust, Zerodha, Alice Blue and Zebu quickly replied that they do not endorse such algo trading platforms. I caught these brokers easily promoting algo services, after which they did not reply to my email. Angel Broking and AliceBlue operate a marketplace to sell algo platforms which draws lakhs of investors. So, these brokers are making money from both brokerage and algo software. MasterTrust promotes TradeTron left and right. CompositEdge, RKSV, Nirmal Bang, IIFL and Angel Broking denied to reply me until I give them my contact details. All of the 14 brokers were dumbstruck to answer my queries, even though I emailed specifically to their Compliance Officers, broker CEOs, NSE Directors (a) Mr. K Narasimha Murthy (b) Prof. S Sudarshan Ms. Mona Bhide (c) Girish Chaturvedi, and SEBI Head office and regional offices. Gill Broking, Arham Wealth, Tradewings and SAMCO did not reply even the usual disclaimer, perhaps they could understand the tone in my email that I am going to expose them. It is important to note here that Zerodha is India's largest broker, RKSV comes second, Angel Broking comes fourth, 5paisa comes sixth and IIFL comes to thirteenth largest broker in India. This gives an estimate how large is the scam of retail algo trading. Currently 50+ brokers are recommending Algo services to investors.

The current scenario with retail investors is similar to the slavery practice in the US in 1800s. Its considered normal because it’s happening everywhere. Investors like me accuse themselves for being foolish, just like Blacks used to think they deserve slavery. Even when investors “feel” they are being cheated, they are technically inadept to chase brokers. Even though I am an IITian, I could not understand why I am consistently losing money for a long time. Slaves are not killed, but rather fed minimally to make them work. Similarly, investors do not lose money suddenly on these platforms. Investors lose money slowly trying one strategy after another and purchasing one subscripttion after another.

The modus operandi of these server based algo platforms is a no-brainer. At any point of time, 80% of investors are losing money but 20% are making money by sheer randomness. Since all trades happen from their servers, they can "see" which investors are making money. They call and take testimonials from these 20% users, then use testimonials for marketing algo services. These algo services make a lot of money from their platform fees (750 to 5000 per month). The founders of all the platfroms mentioned here are sub-brokers of the brokers which promote them, so they also make money by handsome share in brokerage. Someone told me Algomojo nets income between 25-30 lakhs per month by brokerage sharing alone, being a partner with multiple brokers. SEBI regulations prohibit one person for being sub-broker with more than one broker. This rule can be easily dodged by taking sub-brokership in the name of friends, family and colleagues. Mr. Umesh Ranglani, Tradetron's founder, is a sub-broker of MasterTrust. MasterTrust sends inactive clients to Tradetron, and the brokerage generated comes back to MasterTrust. A large number of Tradetron's strategies do churning trades to extract brokerage from clients. The thousand self-acclaimed trading gurus on Tradetron are all sub-brokers who make money from brokerage and selling strategies. Web platforms further make money in proprietary trading accounts, by taking counter-positions to the tips that their strategies dole out to retail investors. And then, they make money in proprietary trading accounts from the top 1% strategies which are genuinely brilliant and submitted by retail investors to these platforms for execution. Finally, these algo platforms make money by frontrunning client orders; their strategies automatically trigger orders in 1000s of investor accounts with capacity to manipulate stock prices. Since the algo trading ecosystem in India is a cartel of brokers and sub-brokers, the brokers have no problem in sharing their clients stock transactions data (buy/sell orders) with the algo platforms.
 



 29 Replies

Utsav Kapoor

Utsav Kapoor (Student)     28 July 2021

Attached some references I was not able to attach in original article.


Attached File : 3460124 20210728210137 references.zip downloaded: 66 times
Utsav Kapoor

Utsav Kapoor (Student)     29 July 2021

Attached another file which completes the set of references to this article.


Attached File : 3460124 20210729083305 email replies.zip downloaded: 39 times
Anil Rajeev

Anil Rajeev   29 July 2021

I am not trying to justify the algo platforms here. But can clearly see how people without any knowledge of FNO like you lost your money. Algo platforms are a way that you lost money. You should also write to SEBI and NSE to block FNO for retailers too then. Without these platforms also, lot of retailers have lost money. I have lost 50L+ just by directly trading in FNO. Its not the algo platforms mistake, its the ignorance that is the mistake and not knowing when to stop trading. 

1 Like
Anil Rajeev

Anil Rajeev   29 July 2021

Let me add that I have started making money by following a system via TT. As of now, recovered 10L, for which I am happy. 

CA-CWA RAVI

CA-CWA RAVI (CA-CWA in industry)     30 July 2021

I dont believe in this loss story above. And it seems more like an effort from big guns to defame TT as it is dealing with so many retail money.

Finally retailers were able to make money through systematic trading, and all off a sudden there is negativity all around.

I am using tradetron from September 20, and this is the period i have finally recovered past losses and turned the table with profits. 

On these platforms, I have a lot of strategies and creators to chose from. If i like to buy i can use buy strategies, while if i am comfortable using selling strategies, i can do that as well. I have whole control of my algos in my hand, from activating the API token before market opening to pausing or exiting a strategy as per mybown will.

I dont know why you are writing so big to be true 'loss' figures to defame TT. Because, i can give testimonial of hundreds of my traders friend, who are finally making money through sytematic trading using platforms like tradetron.

 

PS : I am almost 12 years old user here, and have no relation with TT whatsoever, except being an active small trader of its strategies. I just did not believe on your story and it is in its entirety, away from reality. If you had lost that much, it must be due to ur over trading or very poor money management. 

2 Like
Sitaram Panda

Sitaram Panda   30 July 2021

I am using Tradetron since January 2021 and I must say they have done a wonderful job for retailers to trade without emotion in a systematical way.

Each strategy in Tradetron clearly specifies risk involved , reward expected and the segment it is going to trade. Now it is upto the user to choose the strategy and to deploy in has own account. So I totally disagree to the statement when anyone say user is unaware what the computer program does in his account . Even though it does anything suspicious, user has full control to stop the algo . After all it is the users account which he he full control.

Coming to your story. I feel very pity that u lost huge money. At the same time i know it is always easy to blame others for failure instead of accepting own fault. You are a well qualified IT person. So you were pretty much comfortable in operating simple application like Tradetron. You spent 1.2 lakhs (hard to believe) for learning stock market, dint u understand what kind of trades are going on in ur own account? If u deny both the above arguments then I have nothing to say. 
Lastly i want to say all users , stock market is risky that everyone know. So do a calculative risk and trade  accordingly. If u dont do that you will keep on blaming others, sometime Tradetron, sometime advisor, sometime trainer. But at the end it u who lost money.

i hope this reply will help many other retail users.

1 Like
Qwerty

Qwerty (Other )     30 July 2021

Looks like another paid article. Mr. Utsav Kapoor has the time and brains to do so much of analysis on the market structure, laws surrounding the xyz, but did not have the brains to know that any FNO trade has risks that he has to bare. API solutions provided by brokers are very useful in developing many applications that benefit millions of users. About legal and illegal. The NSE is not a statutory body, it can only direct rules to its members. But there are many amazing people building amazing technology solutions that are in no way associated with brokers. If you had only spent all this time researching such companies before you would know that for every one company that you have listed here; there are 100 that offer solutions to users without any association or conflict of interest with brokers. The only scam I can see here is that you were robbed out of brains during the genetic distribution of resources.

 

you paint this story of sympathy and being an honest person, but in reality you come across as a crook. 

Qwerty

Qwerty (Other )     30 July 2021

Also, there are many api platforms that allow you to chose your broker. Many brokers now offer 0 brokerage. So this conflict business I do not understand. Why did you go with master trust when you could have gone with a more reputed name? 

Qwerty

Qwerty (Other )     30 July 2021

In your references you have not show even a single reply or email to the sebi or nse . Instead like a fool you show the moneylife article of Suchitra Dalal. Go on Twitter and see what people have said about her article. She has been gaslighting algos because she is being paid by big players who don’t want algos to be promoted. You think the public is a fool ? 
 

you have 20 lakhs to lose , could not pay 2000 to an investment advisor to advise you if the strategy or investment you were doing is apt for you ?

utasv bhai , aap ka yeah jhoot samne aagaya.. lagta hai aap yeaha scam kar rehe ho 

 

 

Utsav Kapoor

Utsav Kapoor (Student)     30 July 2021

To all tradetron salesmen doing fake posts, registering on this website just to reply this thread:

Check my emails SEBI has been kept in Cc. SEBI already ordered enquiry in this matter. 

Utsav Kapoor

Utsav Kapoor (Student)     30 July 2021

Fake replies on my thread by salesmen busted https://ibb.co/VgdQnhG

Rajandran Rajarathinam

Rajandran Rajarathinam (Founder - Marketcalls/Co-Founder Algomojo)     30 July 2021

Hi 

This is Rajandran from Marketcalls/Algomojo and we are running various fintech and education platforms in India (Marketcalls, Algomojo, Febinars, OptionAction,TradeAction,Traderskart). Our primary job is to build better fintech applications and educate our customers on Systematic Trading, Concepts like Market Profile, and Orderflow. I personally myself a financial blogger blogging about markets, trading software trading tools, and automation since 2007 onwards in marketcalls. 

And I thank Mr Utsav kapoor for providing an opportunity to explain and justifying our reputations by his false allegations. We have a reputed audience, followers worldwide, and a reputed brand built over the years we only educate traders and do not advise traders. 


First of all, we don't run any courses worth 1.2 lakh that is a baseless allegation against us. And Also I check our customer database We don't have any client name under Utsav Kapoor. It is incredibly upsetting that false allegations are made against our brand to spoil the reputation that we build over the years. I doubt the credibility of Mr Utsav Kapoor as most of the comments made by him are baseless and concerning us to take strong legal actions. 

1)Algomojo is DIY (Do it on your own) trading platform for traders who want to do API-based trading using brokers API. It is the trader's responsibility to design/run trading strategies, manage risk and reward.
2)Algomojo only provides a platform to integrate various technical tools like Amibroker, Tradingview, Excel, Metatrader, Python, etc. It doesn't have any in-built strategies. Traders have to integrate their own trading strategies into the technical tools and run in their own trading environment.
3)Algomojo does not have any in-built strategies and Algomojo will not trade on behalf of traders. Algomojo provides end-to-end trading needs for the traders right from education, data feeds, servers which are mostly required by our customers to create their trading infrastructure.
4)Algomojo is no way associated with any of the brokers as sub-brokers. We act as digital referral partners to brokers and that is totally legal to do business.

I strongly recommend admin of the forum to verify such baseless accusations before allowing users to post any false claims.

Rajandran R
Marketcalls/Algomojo

Utsav Kapoor

Utsav Kapoor (Student)     30 July 2021

Thank you Mr. Rajandran for showing up. I hope you do not get me banned before replying me. I have 2 points:

1. About the courses - you are right I did not pay for single 1.2 lac course. But I did pay 1.2 lac in bundle of online courses for Amibroker, Tradezilla and Options. I have receipt of these courses. But if I have to show receipts I will rather do that in Legal Court rather than forum. Here in this thread I would rather stick to the matter of illegal retail algo trading.

2. About Algomojo- your website claims 6 partner brokers. Can you prove a single broker who REALLY has partnered with you? rather all these broker dissociate with you because you are doing illegal stuff. Zebu is claimed as partner broker on your website. Check the email folder response from my post above, how Zebu completely dissociated with you.

 

 

 

1 Like
Naval Joshi

Naval Joshi (Data scientist)     30 July 2021

Hi Utsav,

First all I would like to thank you for such a well-written article with so much proof and details.

I also have been scammed by these guys, and anyone selling algo without proper licence and NSE approval is a scamster. They just want to SELL GREED and fool those who don't understand the regulations and how the markets work.

If these algo seller were so good with the algo, by now they would have been a registered PMS or a small fund managing people's money genuinly.

They are taking advantage of covid to just sell and market greed, and yes most of the guys above who have written bad stuff about you are tradetron sale men and affiliate people and you can see them running and posting garbage on tradetron telegram channels too, and they keep saying thing like others are jealous etc, which is very stupid, retail have lost most money in last few years due to jokers like this and institutions are happily doing what they have been doing, and also might be buying data from these jokers to see where to screw small traders.

 

In the end, I would like to thank you for this article and please keep pushing to bring the truth out and to set things right. And please share this post everywhere(i will do too), so that people don't fall in these traps and know the truth.

Best Regards

1 Like

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