Two top Indian stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), have warned investors against locally unregulated derivatives products like contracts for difference (CFDs) and binary options.
“The Exchange has noticed some unregulated platforms/websites offering trading in certain unregulated derivative products called Contracts for Difference (CFD)/Binary Options,” the exchanges stated in a press release published on Monday. “Investors falling prey to the promises of high/exorbitant returns by these websites/platforms may eventually lose money heavily.”
“Hence, Investors are advised to refrain from dealing/investing in unregulated products such as Contracts for Difference (CFDs)/Binary Options offered by such unregulated internet-based trading platforms.”
The warning came when many foreign CFDs brokerages are tapping the lucrative potential Indian retail trader base. These brokers are running massive campaigns on social media and have signed popular faces from local sports and entertainment industries in the country for endorsements.
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A Grey Area
The Indian securities market is being regulated by the Securities and Exchange Board of India (SEBI). Though it is mandatory for any financial market participants to obtain a license from the local regulator, the foreign CFDs brokers are operating in a grey area as the space is neither regulated nor banned.
Almost none of these brokers are even registered with SEBI. They are mostly operating in the country with offshore licenses.
Before the recent alarm by the two stock exchanges, other regulated Indian brokerages cautioned investors against foreign investing through unregulated risky derivatives like CFDs. However, the SEBI did not warn against the growing presence of CFDs and binary options brokers.
Unlike India, the CFDs industry is highly regulated in all of the top markets like the United Kingdom, European Union, Australia and others, while the sale and distribution of binary options are mostly banned.