Even registered entities sometimes engage in activities that can wipe out the capital of retail traders.
Following is the case of Mr. Vijaypal (name changed), who invested his money in Futures and Options (F&O) based on his broker’s recommendation and ended up losing his capital.
Why do brokers provide such risky recommendations?
Ofcours, to earn money from brokerage and sometimes to meet their brokerage capital targets. These individuals may work with a broker but are often not registered analysts. In fact, they are usually salespeople with brokerage generation targets.
To earn their incentives, they provide recommendations without proper knowledge, which eventually leads to losses for their clients, the retail traders.
Here is a brief summary of the case.
Vijaypal: Hello, ADB Team. My name is Vijaypal, and I need your help with a serious issue regarding my trading activities.
ADB: Hello, Vijaypal. We’re here to help. Please tell us what happened.
Vijaypal: I have been trading in equities for the past three years with a steady interest of 1 to 2 percent. However, in January this year, a broker called me and suggested I try intraday trading and FNO (Futures and Options). He said if I invested ₹30,000, I could make a profit of ₹50,000. On the first day, he helped me make a profit of ₹9,000, and I was excited.
ADB: What happened next?
Vijaypal: The next day, I incurred a loss of ₹4,000. The broker told me to balance the loss by investing another ₹30,000, which I did. This cycle continued, and eventually, I ended up with a loss of ₹350,000 in intraday trading. This all happened around January 9th.
ADB: That’s quite a significant loss. Did the broker provide any further advice?
Vijaypal: Yes, he said that with the new budget coming up, I should invest more because the market would go up. I took out a loan from a financial institution to invest more, but I ended up losing again. He also advised me to invest in the company’s portfolio.
ADB: Did you follow his advice?
Vijaypal: Yes, I did. Now, my total loss amounts to ₹800,000. The broker does not have a registration ID, and I haven’t filed any complaints via email or otherwise.
ADB: We understand your situation. Do you have any records of your transactions and communications with this broker?
Vijaypal: Yes, I have the transaction records and some communication logs.
ADB: Please share those documents with us. We’ll review them and initiate an investigation. We’ll also advise you on how to formally file a complaint in NSE first. In case you don’t get a satisfactory response then we can lodge a complaint in SCORES and other platforms.
Vijaypal: Thank you. I really need your help to recover from this.
ADB: We’re here to assist you. Please avoid any further investments or communications with this broker until we have more information. We’ll keep you updated on our progress.
Now this raises the question, whom to trust?
When it comes to your capital, you must trust only your knowledge and skills. Even recommendations from registered research analysts can lead to losses.
After all, it is your money, and only you must be responsible for it. Everyone else is doing their job and hardly cares about your losses. It is, therefore, important to stay informed and avoid trading in any segment you are not proficient in.
