KOCHI: Futures and options (F&O) were originally conceived as hedging tools – designed to help businesses and investors manage risk.
However, many unsuspecting traders have embraced these derivative products purely for speculative trading, without fully grasping the fiscal dangers involved.
This has opened the door for individuals and entities offering lucrative training programs in F&O trading, attracting thousands with promises of easy wealth.
The result: countless retail traders diving into these complex instruments without a proper understanding, only to suffer massive financial losses.
Many innocent people are falling prey not only to these so-called educational courses but, more seriously, thousands have jumped into such trades without realising the magnitude of fiscal danger involved.
The Securities and Exchange Board of India (Sebi) has repeatedly warned against reckless trading in derivatives, introducing several checks and controls to discourage uninformed participation.
Yet, despite these measures, F&O trading continues to be marketed as a shortcut to financial success.
The key risk: Time is not on your side
One fundamental distinction between stock trading and F&O trading lies in the timeline. When an investor purchases stocks, they have the luxury of holding on to them indefinitely, waiting for a favourable price before selling. This flexibility allows for long-term wealth creation and risk management.
In contrast, F&O contracts come with an expiry date. Traders must settle their positions within a fixed timeframe, which forces them into action regardless of market conditions. This lack of flexibility significantly amplifies risk.
If the market moves unfavourably, traders do not have the option to wait for a recovery – losses must be realised, often leading to substantial capital erosion. This time-bound nature of derivatives trading is the crux of its risk, yet many retail investors fail to recognise it before entering these trades.
The finfluencer trap
Sebi’s latest crackdown highlights the growing menace of unregulated financial influencers, or “finfluencers,” who exploit social media to lure retail traders. One such case is that of Asmita Jitesh Patel, who branded herself as the “She Wolf of the Stock Market” and ran an unregistered investment advisory service under the guise of an F&O trading education program.
Her firm, Asmita Patel Global School of Trading Pvt Ltd, charged students up to Rs7 lakh for courses that promised risk-free wealth generation.
Sebi has now barred Patel and her firm from the securities market and impounded Rs53.67 crore of what it termed “ill-gotten gains.” The regulator found that Patel’s operation had amassed Rs104 crore from these unregistered advisory services.
Her aggressive marketing claimed that students could see their capital multiply risk-free through proprietary trading systems. Testimonials from supposed graduates showcased individuals who turned modest investments into multi-crore trading accounts, reinforcing the illusion of guaranteed success.
In reality, many of these traders suffered catastrophic losses.
Trading dreams turn to nightmares
While Patel’s courses were positioned as purely educational, Sebi’s investigation revealed that they functioned as an unregistered investment advisory service.
Students were added to exclusive Telegram groups where Patel and her team provided direct buy-and-sell recommendations, further blurring the line between education and financial advisory.
The training also downplayed the significance of risk management tools such as stop-loss orders. Participants were encouraged to ignore initial losses with the promise that their investments would eventually turn profitable.
Patel even went so far as to compare stock trading to traditional businesses, claiming that the stock market offered lower risks than running a restaurant – an assertion that proved misleading for many.
A broader crackdown on finfluencers
This case is part of Sebi’s broader action against financial influencers who mislead retail investors. In December, the regulator took action against “Baap of Chart,” a Telegram-based options trading guru, and recently proposed stricter guidelines prohibiting finfluencers from making direct or indirect performance claims.
These measures underscore a major challenge in India’s evolving financial landscape: how to regulate the intersection of social media influence, financial literacy, and retail investing.
With F&O trading becoming more accessible, it is crucial for investors to distinguish between legitimate education and misleading schemes that promise wealth but deliver ruin.
Bottom line: Know what you’re getting into
The allure of quick profits in F&O trading has drawn thousands into risky trades, often without a full understanding of the products involved. Unlike stocks, futures and options come with a built-in time constraint that forces traders into premature decisions, amplifying potential losses.
Add to that the influence of unregulated trainers and finfluencers, and the risk multiplies.
Sebi’s actions serve as a crucial reminder: education in trading is essential, but blindly following high-cost training programs promising guaranteed returns is a recipe for disaster.
Retail traders must tread carefully, ensuring they fully understand the complexities of derivatives before risking their hard-earned money.
