As Sebi comes down hard on speculative trading, investors turn to other options
MUMBAI : Brokerages are fielding increasing demand from clients for a margin trading facility to invest in stocks, possibly triggered by the market regulator’s recent spate of regulatory tweaks aimed at tempering the retail investor frenzy in the futures and options segment. Margin trading facility, or MTF, is considered safer, offers higher leverage, and includes a broader range of stocks.
While option traders typically prefer trading in indices, an MTF is geared towards individual stocks. The Securities and Exchange Board of India is seeking to curb “excessive speculation" by retail, or individual, investors in the higher-risk derivatives market (futures and options).
In a study, Sebi pointed out that more than 90% of retail investors had lost money in the derivatives market. Market experts say Sebi’s recent regulatory moves could cause a dent in overall F&O trading volume, compelling individual investors to seek other routes.
A section of retail investors may gravitate towards margin trading facility as it has similar margins as F&O and offers a higher number of stocks to trade in, along with leverage, said Sandip Raichura, chief executive officer-broking and distribution, and executive director, at stock broking firm Prabhudas Lilladher. “This would be a good move from a risk-management perspective," Raichura said.
“MTF is leveraged, and the risk is lesser due to higher margins, as well as (because it would involve) a mindset shift from daily (mark-to-market) management to managing an ‘investment portfolio’." Mark-to-market refers to adjusting the ‘fair value’ of an asset to reflect its current market price. Also read | Retail investors and the draw of options trading, and why regulators are worried Margin trading
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