Not for Everyone: Why Derivatives Are Risky for Small Investors

Imagine a game where you can win a lot of money very quickly – but also lose even more just as fast. That’s what something called derivatives trading is like. It’s a kind of money game played in the stock market, and it’s become very popular in India. But for most ordinary people, it’s turning out to be more of a trap than a treasure.

A big company from New York called Jane Street has been earning huge money from this game in India. In just over two years, it made about ₹37,000 crore here – that’s a giant amount! But recently, India’s stock market watchdog, SEBI, said Jane Street may have played unfairly and tricked the system to make money. They’ve been stopped from trading for now, though the company says it did nothing wrong.

But this story isn’t just about Jane Street. It shows a bigger problem.

Many people in India who don’t earn a lot of money – say less than ₹40,000 a month – have been trying their luck in derivatives trading. In fact, 3 out of 4 trades last year were by such people. It’s almost like buying lottery tickets, hoping for a lucky win. But just like the lottery, most people don’t win. SEBI says 91% of investors lost money, and on average, each person lost about ₹1.2 lakh. Younger people under 30 were losing money even faster.

So, while small investors were losing a total of ₹61,000 crore, big companies and trading firms were making that same amount. That’s not fair, is it?

A famous investor, Warren Buffett, once said derivatives are like “financial weapons of mass destruction.” They’re complicated and risky. Big businesses might know how to use them safely, but for regular people, it’s very easy to lose big money.

SEBI has made some new rules to protect people, but rules alone aren’t enough. We also need better financial education – people should understand what they’re getting into before putting their hard-earned money at risk.

So, just like you’d be careful before playing a dangerous game, investors need to think twice before jumping into the world of derivatives. It’s not really meant for everyone.

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