A Brief Overview
The ease of access to the internet and information has drastically altered the way in which we engage with the stock markets and investment tools. Now that you can make investments and trade on the stock markets online, traditional brokerage firms have had to get along with the times. This has meant that they now offer their services online and investors and traders alike now have the opportunity to not just view, but make buy, sell and hold decisions online.
The products on offer unfortunately now include a host of unregulated derivative products which the National Stock Exchange has felt needed to be warned against.
Beware of Unregulated Derivative Products
The country’s primary stock exchange – the National Stock Exchange has issued a warning to investors and traders alike to be wary of investing in unregulated derivative products. These include contracts for difference along with binary options that are available on trading platforms that offer their services online.
Their statement declared that investors were being gullible and thereby falling victim to the misguided promises laid forth by these online platforms that promised extremely high returns. These platforms lure investors in with these promises of reaping major returns but the harsh reality is that most patrons ultimately end up losing significant sums of money.
As a result, the NSE felt it important to issue a warning to steer clear of such investments.
This warning came about after the National Stock Exchange caught wind of certain unregulated platforms and websites vending a number of unregulated derivative products that included contracts for difference (or CFD) along with binary options.
Other Pertinent Information
When considering contracts for difference, they can be understood to be contracts that exist between buyers and sellers. These contracts draw attention to the fact that the buyer will pay the seller the amount by which the prevailing value of an asset differs from its value at the time of the contract. This investment allows for investors and traders alike to potentially draw in profits from the change in prices that occur in the market without actually having to own the assets in question.
Moving on, binary options refer to options that have determined payouts wherein investors are responsible for predicting the scenario of two potential results. Should their prediction be accurate, investors are provided with the payout that was previously agreed upon. In the event that the investor is wrong, they lose out on their initial stake. Owing to the fact that there exist only two outcomes i.e., to succeed or to lose, this tool has the term ‘binary’ added to it.
Factors to Consider when Looking at Online Stockbrokers
Given the backdrop of unregulated platforms, it is important to take into account some factors when looking at online stockbrokers.
For starters, it is important to know what your needs are and what you most require from a trading platform. Your needs will be dependent upon your investment goals and where you place yourself in terms of your investment journey i.e., beginner, intermediate, or expert.
Understanding the fees associated with the stock brokerage is equally important. These ordinarily pertain to accounting as well as trading commissions.
Investing in the stock market is easy however to truly benefit from your investments it is important to proceed with caution. Should you wish to partake in online trading, always make sure you understand the terms and conditions of the platform in question and be wary of offers that sound too good to be true.
Frequently Asked Questions
Q1. What does the NSE stand for?
A1. The NSE stands for the National Stock Exchange.
Q2. What does CFD stand for?
A2. CFD is an acronym for the market offering called contracts for difference.
Q3. Why did the NSE issue a warning against unregulated derivatives products?
A3. The NSE issued a warning against unregulated derivatives products owing to the fact that they were causing investors to actually lose large sums of money on the misguided promise of incurring major returns.