As the stock market goes up, hopes are being built that the bull cycle has begun. The Sensex target of around 19,000 by December set by brokers may be achieved before Diwali. In this environment, broking houses are trying to attract retail investors. These efforts are required because amidst talks of bringing in new first time investors to capital markets, there is need to bring back those investors who were active in the market few years back and had disappeared following volatility and losses.
When brokers make efforts to attract investors, some of them end up laying traps for small investors, and the so-called cash rich investors fall into those traps.
How many tips do you get on email or on SMS per day? And most of them give stop losses and targets. If that is not enough, the same tipsters give you progress charts periodically of the tips given by them saying they have 70 per cent success ratio meaning investors made money in 70 per cent of the tips given by them.
However hardly any of them give you details on whether the stop loss was triggered first or the target was achieved first. When you do a deal with stop losses, which come before the target price you end up making losses even if the target price is achieved later on. In several cases stop loss levels are deeper than targets. For example the price of the security is Rs 100, a stop loss is recommended at Rs 70 while the target is Rs 115. If the target stop loss is triggered, your chance of loss is higher than the likely gain if the target would have been achieved first.
In Ahmedabad, New Delhi, Jaipur and similar centres which are speculators’ hubs, lots of other tip-related frauds are happening. Some of these cities and towns are where people have made huge money in land deals as property prices surged in the past few years. There are many towns in Gujarat where people made easy money and lost too.
In Ahmedabad, according to a commodity advisor, Shariah compliant tips are given which later turns out to be frauds. According to him in 2012 so far at least in ten cases, brokers-tipsters had given offers to double the investment in six months. They even issued post dated cheques of double the amount. This was working because in Islam, interest and badla are not permitted. In all the cases, the tipsters have disappeared later.
There is a class of analysts that has emerged who give 10 buy calls and 10 sell calls of similar securities and they can still be proved right in half of the cases. They just have to collect fees without doing any research.
In commodities also tips and dabba trading is rampant. Many brokers provide you facility to trade gold on Comex, a US-based exchange well-known for trading in gold. One can trade in gold there and avoid the rupee risk. For example in the last three months, gold prices in international market went up by 13 per cent while in India, the rise was just half of that and that was because of rupee appreciation. If you would have punted on Comex, which is legally not allowed for Indians, your gains would have been 13 per cent. People take cross currency bets and even take bets in different time zones like arbitrage in Singapore and Tokyo for gold to take arbitrage benefits, all illegally.
While no investor would like to miss the money-making bus, they need to be very careful about such tips and understand the risk. No one has made money in just day trading.