F&O trading: Common investors have jumped in the F&O ring making India the undisputed global leader in this extremely risky derivatives trading. RBI thinks such reckless behaviour could cause them serious financial injury. The torrent of expert warnings against retail participation in F&O (Futures and Options) keeps growing in the country with the Reserve Bank of India joining the chorus with a report that red flagged the huge retail participation in this segment and warned that they could be caught unawares by sudden changes in the market.
The RBI’s Financial Stability Report (FSR) which is published twice a year said, “...
the rapid rise in F&O volumes in recent years could pose several challenges: retail investors could be impacted by sudden movements in markets without proper risk management and this could have knock-on effects on cash market; rise in popularity of shorter-duration options in indices with few stocks and high volatility could amplify leverage...
” Investor protection paramount “Since derivatives are more complex than the underlying, investor protection is a key regulatory imperative,” the report added. However, RBI is not the first agency that has issued warnings against this growing trend in reckless and extremely risky investing by individual investors who are simply adopting it after a fashion in the hope of making windfall profits. Tell-tale data Many pieces of tell-tale data show how the lure of hefty profits is attracting lay investors to thi.
