In my decade-long tenure within the financial markets – initially as a dealer cum relationship manager, and subsequently as an independent operator serving both my own interests and those of my clients – a glaring truth has crystallized regarding the dynamics between brokers and their clientele.
It’s an irrefutable fact in this industry: brokers thrive by keeping clients highly active in day-to-day trading, thereby raking in substantial revenues. Among the myriad instruments, option buying emerges as the most prolific, ensnaring over 90% of traders who inevitably deplete their capital. Brokers are acutely aware of this trend but chose to overlook it until regulatory intervention, notably by SEBI, compelled transparency.
A disconcerting trend has emerged where brokers opportunistically purchase Out-of-The-Money (OTM) options at rock-bottom prices just before expiry, subsequently offloading them at negligible values, all to earn brokerage fees. Meanwhile, maintaining a revolving door of relationship managers has become a prevalent strategy to foster trust, even as clients remain none the wiser to these maneuvers.
Another prevalent tactic involves prematurely squaring off positions with significant short-term potential, opting instead to exit slightly above or at breakeven levels. This maneuver ensures a continuous flow of funds into new trades, perpetuating the cycle of trading activity while obfuscating the true risks, rewards, and nature of the financial products being traded.
The litmus test for discerning the integrity of an advisor lies in their willingness to counsel restraint during unfavorable market conditions. Entities advocating for a pause in trading during periods of heightened volatility or uncertainty demonstrate a genuine concern for their clients’ wealth and long-term returns.
In navigating the labyrinthine world of finance, vigilance and discernment are paramount. Clients must demand transparency, diligence, and accountability from their brokers, while regulatory bodies must remain vigilant in upholding fair and ethical practices within the industry. Only through collective vigilance and adherence to ethical standards can the financial markets truly serve as engines of prosperity for all stakeholders involved.
