Dangerous Derivatives!
In the race to increase business and market share, are India’s stock exchange’s turning into a casino-like structure and bleeding retail investors? According to a recent report by Axis Mutual Fund CIO Ashish Gupta, the “Gamification” of Indian equities is causing losses among retail investors. Experts attribute this trend to the facilitation by stock exchanges and regulators.
In fantasy sports, the ‘take’ from the pot is typically 15%. For every Rs. 100 wagered, players can expect to retain at least Rs. 85. However, in the derivatives markets, most traders end up recovering only Rs 15 out of every Rs. 100 they bet. A recent SEBI study in FY22 revealed that on average, retail traders lost over 80% of their investments (Rs. 45,000 crore was lost by 90% of participants, while only 10% earned Rs. 6,900 crore).
Originally designed as a risk-hedging tool, derivatives have now become synonymous with the pursuit of massive profits, resulting in increased risk-taking behavior. The allure of high leverage on derivatives contracts and easy accessibility has attracted retail investors driven by greed. “The disparity in leverage between equity trading and derivative trading is stark, with derivative traders enjoying leverage up to 500 times their invested capital,” notes the report.
Excerpt from ‘Legal Casino: Equity Derivatives A Losing Game For Retail Investors?’ forwarded by Nayan Patel
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