The number of scams and frauds in the world of stock trading is at its peak. In such cases, it is always better to use the services of registered entities including stock brokers.
But when it comes to the services of SEBI-registered stock brokers, how would you ensure that they are not involved in any unethical practice or fraud?
Well, a simple understanding of basic do’s and don’ts that apply to registered stock brokers.
Here are some of the basic services that a stockbroker is allowed to give:
- Trading Account to Add Funds
- Trading App to Trade or Invest
- Research Advisory
- Certified Algo Trading Services
These are the common services, but what’s more important is to know what a broker is not allowed to do. According to SEBI regulations, a broker is not allowed to:
- Ask for your login details without any consent.
- Trade without your permission
- Ask for profit sharing.
If your broker violates any of the above, then it is time to get an alert and directly report it to SEBI.
Not knowing about the services and violation Danish (name changed) recently got trapped in the fake promises of quick profits of a renowned stock broker and lost ₹1,00,000 in a day.
It All Started with One Call From a Broker
It was a day that was going as usual until Danish received a call from a stock broker. The representative from the brokerage firm told him about the trading benefits of using their trading app.
Further, he added how their team would help Danish in earning profit through their trading expertise.
Danish who had zero knowledge of trading found it an easy way where a broker would handle his account and manage all the trades.
The executive also gave Danish an assurance that before taking any trade, they would seek permission from him and ended the call by proposing profit sharing, in which they asked Danish to share 50% of the trading profit with them.
Danish thought for a bit and finally agreed with their conditions. He immediately opened his demat account and added ₹1,00,000 in two installments of ₹50,000 each.
However, things didn’t work as promised.
Despite the clear agreement, the broker went ahead and executed trades without informing Danish. The next day, when Danish checked him he went into shock when he found no money in the account.
The whole capital was wiped off.
When Danish called the executive, he gave some senseless reasons like brokerage amount, etc.
But no confirmation was taken for placing trades. Danish felt helpless and betrayed.
But the worst was about to happen. The brokerage firm deactivated his demat account which made it impossible for him to access the remaining funds or seek further clarification.
Seeking Justice: Danish Takes Action
Feeling wronged and with no resolution in sight, Danish reached out to our team for help.
Understanding the severity of the situation, we immediately took action.
Our first step was to report the case to the brokerage firm, demanding an explanation and a refund of the lost amount. After a few days, without discussing the matter with Danish, the broker transferred ₹60,000 to his inactive demat account.
However, the client was not satisfied with this and he was not able to access the account, so what’s the use of the fund that was refunded?
He raised the concern again to the broker but didn’t get any response for days. Finally, with the help of our team, he reported the case to SEBI and complained to SCORES mentioning how the unauthorized trading practices of the broker led to the loss of ₹1,00,000.
Identifying The Risk & Protecting Yourself from Getting Scammed!
This story is not only about Danish but many other traders and investors who get trapped in the unethical practices of the registered stock broker, leaving a question: “Whom to Trust?”
Brokers, who are supposed to act in the best interest of their clients, sometimes prioritize their own profits, using hidden fees, unauthorized trades, and other questionable practices to exploit their customers.
This makes it even more important for new traders to stay alert not only at the time of choosing a stock broker but also availing services from them.
Here are some of the lessons for you all:
- Always Get Agreements in Writing: Verbal promises are easily broken. Ensure that all agreements, especially regarding trade permissions, are documented in writing. This provides legal protection in case of disputes.
- Monitor Your Account Closely: Even if you trust your broker, regularly check your account for unauthorized activity. Catching a problem early can save you from larger losses later.
- Understand Brokerage Fees: Brokers make money through fees, but excessive charges can quickly eat away at your capital. Be sure to understand exactly how much you’ll be paying in fees before entering into any agreements.
- Take Immediate Action: If something seems off, don’t wait. Contact your broker immediately and seek clarification. If they fail to resolve the issue, report it to SEBI without any delay.
What’s Next?
Danish determination has brought him so far that somewhere broker refunded the amount in his demat account. However, his fight for justice is not over yet and continuously attempting to get a full refund with the help of our team.
But in all this, he learned a very important lesson & the importance of awareness and knowledge of investment & trading to protect themselves from such fake promises and services.
So, even if you have a demat account with the top-notch broker always be cautious, do your research, and stand up for your rights when things go wrong.
In an industry where promises of profit often come with hidden costs, investors must be proactive in protecting their interests. After all, the price of trust can be far higher than anyone expects.
