Leading stock exchanges BSE and NSE have asked investors to refrain from investing in unregulated derivative products such as contracts for difference and binary options offered by internet-based trading platforms.
In separate statements, the exchanges said investors falling prey to the promises of high or exorbitant returns by these trading platforms may eventually lose money heavily. Accordingly, investors have been advised to refrain from dealing or investing in such products, they added.
The development came after the exchanges noticed some unregulated platforms or websites offering to trade in certain unregulated derivative products called contracts for difference (CFD) or binary options.
CFD, in market parlance, refers to a contract between a buyer and a seller that stipulates that the buyer will pay the seller the difference between the current value of an asset and its value at contract time. It permits traders and investors a chance to profit from price movement without owning the underlying assets.
The binary option is a type of option with a fixed payout in which an investor predicts the outcome from two possible results. If the prediction is correct, the investor receives the agreed payout. If not, the investor loses the initial stake. It's called "binary" because there can be only two outcomes -- win or lose.