The options frenzy in India is being driven by frustrated individual investors

 The options frenzy in India is being driven by frustrated individual investors

The overall turnover of futures and options on equities and indexes last month was $78 trillion, which was 441 times more than the $178 billion in shares traded on India's National Stock Exchange. There isn't a single large market in the world like this one.

Over $178 billion in futures and options on stocks and indexes were exchanged on stock exchanges last month, for a total of $78 trillion.

Regulators worldwide are having a difficult time keeping up with the unbridled public urge to speculate in financial markets. This is especially concerning in India, where the volume of trading in futures and options has surpassed 400 times that of the underlying cash market. The actual economy is losing money slowly to the financial elite, and this will only become fully apparent when it is too late to reverse the trend.

The crackdown by the Securities and Exchange Board of India on advice-giving social media celebrities is a failing strategy. Retail investors are having difficulty finding adequate derivatives, even if nine out of ten individual traders are losing money. The simplicity of investing via smartphone use is complete.

This wasn't always the case. Financial markets and specialists had little to no impact on the nation's economy or popular consciousness until the early 1990s. Money was stored by citizens in government banks. It was uncommon to own stocks directly. Those with surplus funds purchased paper slips from the Unit Trust of India, a dark horse for investors that consistently delivered capital dividends of 20–25 percent. This was the degree of the middle class Indians' avarice for their product.

The changes began with the opening of the economy. The endearing Mumbai stockbroker Harshad Mehta was known as "Big Bull". In early 1992, he placed an eight-column newspaper ad with the headline, "Harshad Mehta is a liar," making him the first Indian to purchase a Lexus LS400.

That implies, of course, that he was the exact opposite. But by year's end, Mehta was indicted for orchestrating a significant securities fraud. The market, which had only recently started accepting foreign institutional money, lost the trust of the public, which resulted in a number of changes, including electronic trading, guaranteed settlement, the substitution of account entries for paper-based share certificates in order to prevent counterfeiting, and the introduction of exchange-traded derivatives in 2000.

This last enhancement proves to be really beneficial. According to SEBI data, males make up over 80% of individual traders who are interested in options. They are generally young; the age range of 20 to 30 years old is seeing the most development. If they are fortunate enough to turn a profit, the brokerage, clearing, exchange, regulatory, and tax costs may range from 15 percent to 50 percent of that total. The suffering of the 89 percent of traders who lose money is exacerbated by transaction charges.

According to a recent report published in The Lancet, the number of suicide fatalities climbed by 73% between 2014 and 2021. Indian males are considered wealthy if they make between $6,000 and $12,000 a year. That suffices to be eligible. The suicide rate has not increased as much among men who are affluent or impoverished. It is impossible to draw any firm conclusions about speculative trading gone awry, but articles in the newspapers indicate that losses in the stock market are troubling even young professionals.

The allure of easy money is becoming more and more alluring in the face of rising unemployment, stagnating wages, and ongoing media coverage of the wealthy's ostentatious consumption—a lethal mix of despair and temptation. It would be essentially a performative exercise to ask brokers to only accept customers who have a sufficient stomach for risk. It could be sensible to regulate the amount of leverage available to individual traders.

Those who criticize these restrictions as being too strict are worried about how investors would feel. With almost $4 trillion worth of listed shares, the nation's stock market is now the fifth biggest in the world. Furthermore, India's 500% rise in futures and options traders since 2019 is a result of a worldwide phenomena brought on by pandemics. On Wall Street, options—especially short-dated contracts—are also the newest and greatest thing.

But there is a distinction. While some of the excessive risk-taking may be offset by the much-anticipated US-listed Bitcoin exchange-traded fund, Indian regulation and taxes have killed cryptocurrencies and forced the closure of regional digital asset exchanges. Equity options constitute the majority of retail betting.

The primary benefit of derivatives, as opposed to cryptocurrencies, which have not yet shown any social use, is that they provide investors with cheaper hedging costs. Although this justifies keeping them properly lubricated, it does not imply drenching them with fluid. Over $178 billion in shares were exchanged on India's National Stock Exchange last month, while the overall turnover from futures and options on equities and indices was $78 trillion.

out of 441. No other global big market is as imbalanced as this one. It is, indeed.

Certain heavily traded contracts expire every day amid a rush of last-minute activity. Brokerage applications are pushing for later trading hours—until nine o'clock at night. Local time, despite the notion being rejected by conventional arbitrage. It will not be feasible to eject day traders from their terminals while the markets are open.

And how much? Harshad Mehta held an auction for his Lexus. The middle class can become mentally unstable. Except for the government's portion, the money coming in to cover transaction charges will go to exchanges and stockbrokers. A developing nation that still has a long way to go before becoming wealthy might be especially harmed by premature excessive finance, even if too much money and power are always best concentrated in the hands of a small group of wealthy people. must provide tangible results.