In recent days, a storm has erupted in the world of online trading. Thousands of furious traders have taken to social media platforms, accusing high-profile trading instructors of deceiving them. These traders allege that these instructors have been making false claims about their trading expertise, alluring unsuspecting investors into purchasing their online trading courses or opening brokerage accounts, from which they rake in significant referral fees. But is this outrage justified, or are these traders merely looking for scapegoats as they come to terms with a harsh reality? A reality revealed in a recent market regulator study, indicating that a staggering 90% of active traders dabbling in derivatives trading incurred losses in 2021-22.
The Indian capital market has experienced an unprecedented surge in the past three years, drawing in millions of new investors, all seeking quick riches. This surge has created a ripe market for information and trading expertise, leading to the emergence of self-proclaimed experts with only a few years of market experience. These experts offer stock market trading courses ranging from Rs4,000 to Rs60,000.
However, the credibility of these trainers often rests on questionable foundations. They employ tactics that are unrelated to their actual trading skills or knowledge. Their self-assured portrayal as successful traders, accompanied by dubious claims of massive profits, social media savvy, and tech proficiency, serves to promote their courses and generate income through broker affiliations and influence peddling.
Many of these trainers have amassed millions of followers, all hoping for a shortcut to financial success. However, three years is a long time for someone who has experienced significant financial losses. As a result, the hype, falsehoods, and deceit are gradually being exposed from within.
A group of individuals has taken vigilante action to reveal that two trainers, who touted their substantial profits from superior trading skills, had actually concealed losses in derivative trading. Moreover, they allegedly violated rules by providing trading tips to subscribers within subscriber-only social media groups, all without proper registration with the Securities and Exchange Board of India (SEBI) as investment advisers. These tips led to substantial losses, sparking outrage among traders and a call for an investigation and regulation of these trainers’ activities.
The power of social media ensures that any activity and its misuse gain rapid and widespread attention, leaving market regulators struggling to keep pace, let alone regulate these activities. Interestingly, the first voices advocating for regulation and disciplinary action have come from within the industry.
The issue of regulation extends beyond trading trainers. For instance, retail algo trading, despite being a computer-coded investment strategy, has remained largely unregulated, allowing algo writers to make false promises of extraordinary returns. Some have even operated portfolios for clients, further violating established rules. Only recently, in September 2022, did SEBI take a tougher stance on dubious deals between algo writers and brokers.
Financial influencers, who endorse products or services for a fee on social media, have also faced scrutiny. SEBI has discussed regulation in this area since November 2022 but only initiated a consultation paper after industry insiders conducted a sting operation, revealing a lack of ethics in the industry. SEBI’s proposed model aims to disrupt the revenue model of financial influencers by mandating payments through a neutral platform, ensuring accountability. However, this does not cover non-registered trainers and their illegal advisories and portfolio management services.
On August 29th, a group of investors created a stir on Twitter by posting documents suggesting that high-profile trainers, often speakers at TEDx talks and college festivals, were actually making losses in derivative trades. They were not the trading geniuses they claimed to be but earned significant income as trainers, influencers, and YouTubers, and through referral fees from brokerage firms.
These trainers’ false claims are particularly significant, as they entice subscribers with daily screenshots purporting to show crores of rupees in trading profits. To address this, Zerodha introduced a ‘verified’ label for claimed profits. However, many self-proclaimed trading gurus manipulate their profit and loss (P&L) statements to inflate their earnings, as demonstrated by investor Zubair Khan and others.
Moreover, the allegations against these trainers extend beyond false profit claims. The vigilante group obtained documents suggesting discrepancies and incomplete data related to two popular YouTubers – ‘Ghyansham Tech’ and Abhishek Kar. Abhishek Kar is accused of luring investors into higher-tier training programs with promises of greater profits, only for them to incur heavy losses. He even offered to donate Rs2 lakh to charity if he could provide verifiable proof of profitable futures and options (F&O) trading in the past two years. Notably, Mr. Kar has locked his Twitter account and removed tweets and videos making profit claims.
Investors have come forward with stories of significant losses due to the allure of trading riches promised by these trainers. Some have even resorted to selling land to cover their losses. Many have reported numerous dubious practices and fake gurus openly flouting SEBI regulations. Some provide specific options, tips, and strategies during market hours, posing as illegal portfolio management services.
The SEBI Act mandates the regulator to protect investors. While no regulator can shield individuals from their own imprudent decisions driven by greed and impatience for quick riches, the anger generated by these revelations underscores the need for SEBI to take more decisive action against false claims and regulatory violations. Many of these YouTubers openly disparage the regulator in their videos, suggesting that SEBI is incapable of regulating the industry, let alone penalizing wrongdoers.
Investors have shared numerous names of trainers they believe have fabricated profit claims, provided misleading tips, and skirted responsibility for losses. Most of these cases require SEBI’s intervention, as the regulator has the authority to request records and initiate investigations. Hopefully, SEBI will take these allegations seriously and begin a thorough examination.