NSE & BSE caution investors against trading in risky unregulated products

Mumbai: India’s leading stock exchanges the National Stock Exchange (NSE) and BSE have warned investors from buying unregulated products such as binary options and Contracts for Difference (CFDs). Unlike regular securities which are traded on stock exchanges and are settled by clearing corporations. Binary options and CFDs are unregulated and are not publicly traded.

“Investors falling prey to the promises of high/ exorbitant returns by these websites/platforms may eventually lose money heavily,” said NSE in its press release. “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.” NSE and BSE issued separate press release on Monday.

CFDs are agreements between a broker and an investor that allows the latter to bet on an asset without owning it. Investors earn or lose money on the basis of the price changes. These instruments allow investors to bet on stocks, indices, currencies and commodities anywhere in the world at lower costs compared to the regulated markets.


Brokers said the biggest risk of trading in CFDs and binary options is these are unregulated Over the Counter (OTC) products with no exchanges and clearing corporations. This means the risk of bankruptcy of a CFD platform is high, which could result in an investor losing her money.

Brokers said these instruments have gained popularity in India in recent months because of stricter margin requirements. Also, most of these platforms fund clients’ trading bets. CFDs are not permitted in India but these entities continue to offer services to locals as the account with the broker is opened outside the country.

Binary options are the other instruments that have gained popularity in recent months. In this product, the pay-off is a fixed amount or nothing at all. Traders make money if the option expires in the money and lose money if the option expires out of the money.

In regular options, the money made or lost depends on how close the traders’ bet came to actual Nifty or stock performance. But in binary options, the trader either makes a premium/profit or loses everything. There is no concept of partial loss or partial profit.

Market regulators and investigative agencies worldwide have been uncomfortable with the growth in CFD and binary options trading.