Is online trading safe in India?
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- Updated On:17-Sep-2021
- Replies:1
Short Answer
Trading in India is completely safe as all the online brokers are registered by SEBI, which is the regulating body that regulates all the trading activities in the country. Apart from this, there are certain external risks involved in trading like Market Risks, Volatility risks, and over-leveraging, etc. These types of risks can be minimised to some extent by hedging but cannot be eliminated completely.
Detailed Answer
What is trading?
Trading is a type of speculative activity wherein a trader buys and sells particular security (stock, option, futures) solely with the intention of making a quick buck and not holding it for the long term. Traders usually square off their positions within the same day. This type of trading is known as Intraday trading. Similarly, there are many forms of trading which include, Swing Trading, BTST (Buy Today Sell Tomorrow), etc.
Traders also use various trading techniques and strategies which reduces the overall risk. Derivative traders mostly use hedged strategies using derivatives such as Options and Futures. An example of a derivative trading strategy is ‘Covered Call’. In a covered call, a trader basically hedges the stocks which he already owns by selling a Call Option at a higher strike price. In this strategy, the trader hedges his overall downside risks and also generates some additional gains with the help of premium decay in the Call option.
Is trading safe in India?
I am sure by looking at the above benefits, you must be intrigued by the idea of trading. At the same time, a question might linger in your head, that is trading safe in India?
The answer is Yes, Trading is completely legal and safe in India. All online trades go through a registered stockbroker who reports every trade to the market regulator SEBI. The Securities Exchange Board of India (SEBI) is a regulatory body in India, found in 1992, and looks after all the trades in order to protect the interest of investors and traders.
Every stockbroker has to be licensed and registered with SEBI before extending its services to the public. Therefore no matter which broker use to take trades, be assured that, it is registered with the regulatory body and is regulated in every way possible.
Every online broker is obliged to send you a copy of the ‘Equity Contract Note’, which contains all the necessary charges and fees of the broker. You can verify all the charges and the data through the contract note to be assured you are not cheated in any way or other.
The risks involved
Till now, we have looked at the external aspects of trading but safety is not limited to online brokers. There are certain things which you have to be careful about. Trading by definition involves certain risks. The risks involved in trading can be mitigated but you cannot eliminate them completely.
There are market risks, volatility risk, and the risk of the loss of capital involved in trading. Trading with leverage can be risky too. You can lose a majority of your capital easily if a trade goes against you. Similarly while trading in leveraged products like options and futures is very risky. An options seller is exposed to unlimited losses. These measures have to be considered before you start trading.
The SEBI has also eliminated the margins given by the broker for the safety of retail traders. These initiatives can help new entrants in the market in the initial days but do not eliminate the risk factor completely.
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Discussion (0)
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