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It’s a slow Monday afternoon. R Nayak, a 28-year-old with a master’s degree in finance, is hard at work at a place unusual for his qualification—a garment-manufacturing factory in Noida, the industrial city neighbouring India’s national capital, New Delhi. Yet, Nayak says he is content as he meticulously sorts through employee time sheets and payslips.

He recalls the period in his life when he was jailed—and loan sharks haunted his every move—as he found himself in a financial pit dug by his ill-advised experiments in the Indian stock market.

“I can finally escape the grip of creditors,” he says. “The work hours are manageable. They also allow me to hold down a part-time job [and earn some extra money].”

Nayak is among the ~90% of 4.5 million individual traders in India who suffered losses in derivatives trading in the year ended March 2022, shows a recent report report Securities and Exchange Board of India Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment Read more by the markets regulator—Securities and Exchange Board of India (Sebi)—on profit and loss in the equity futures and options (F&O) segment.

Derivatives trading involves buying and selling contracts/agreements, known as futures and options, based on underlying assets (stocks, bonds, commodities, or currencies). Futures impose a commitment to buy/sell these assets, while options grant the right (but not the obligation) to buy/sell at a fixed price by a set date—and they come with substantial risk.

Before Nayak started placing speculative bets on future asset prices, he had a stable mid-management job at a knowledge-process-outsourcing (KPO) firm. Between Covid-hit March 2020 and early 2021, he had managed to accumulate a portfolio of ~Rs 4 lakh (~US$4,800) from direct equity investments.

Around April 2021, a college friend added Nayak to a 300-member channel on the instant-messaging platform, Telegram. He began trading based on blind stock tips, standard F&O trades, and paid courses shared on the app by a “trading guru”.

The Indian stock market—the world’s largest for trading in equity F&O—was booming, and the benchmark Nifty 50 index saw a 95% jump between April 2020 and June 2021. Nayak made a quick Rs 1.5 lakh (~US$1,810) in equity options and intraday trades within three months. His favourite stocks in those days: speciality-chemicals firm Rain Industries and sugar manufacturer Balrampur Chini Mills.

“It was more than my take-home salary. I felt invincible,” says Nayak. “But then I got sloppy.”

By July 2021, he felt confident enough not to rely on the tips on Telegram channels. He started executing trades independently, using all his capital and borrowing money from loan sharks.

Early next month, he went all-in: shorting futures of a mid-level private-sector bank, but the trade went south, and he faced a margin call margin call Margin call A margin call refers specifically to a broker’s demand that an investor deposit additional money or securities into the account so that the value of the investor's equity (and the account value) rises to a minimum value indicated by the maintenance requirement .

AUTHOR

Gaurav Tyagi

Gaurav covers the money trail around everything startups and internet economy. A graduate from the University of Delhi, he joined Institute of Chartered Accountants of India before finding his way to research and journalism. Apart from being a petrolhead, he pretends to be Ari Gold on weekends.

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