The issue with allowing trading in illiquid contracts isn’t for the additional risk on us, but most of these illiquid option contracts are what are used to move money between accounts by fraudsters using circular trading.
The problem has reduced after mandatory 2FA, but some customers still willingly share their credentials, including 2FA to advisors or algo platforms. We have seen cases where the algo creators and platforms have made fraudulent trades to move money from customer accounts by creating losses.
Over 30,000 options contracts are listed on the exchange, but only a fraction of them actively trade, while the rest are illiquid. These options contracts where there is no other trading are used by scammers to place illegitimate trades (buy high and sell low with the same account and in quick succession) which creates a loss in your account and profit in the other trading account. You would assume this is a genuine market loss, but it clearly isn’t.
Apart from the loss, you are now also exposed to regulatory action. Any such trading activity in your account would be looked upon by the income tax department as money laundering (creating losses to avoid taxes, or convert white to black money or vice versa). SEBI considers such trades circular trading. Apart from the monetary penalty that such trades entail, you could potentially be banned for life from the markets by SEBI.
Will be interesting to hear if anyone has a solution for this problem. We will implement and allow trading in illiquid options as well.
Almost all our customers are on the loss-making side. The fraudsters who profit use small brokerage firms. We block customer accounts immediately when we spot a fraud, so no fraudster will use us.
Once the loss has already happened, nothing much can be done. Fraudsters keep switching between accounts where profits are generated. So even complaints to exchanges are useless as the money is already withdrawn by the time an action can be taken.
If you see last few months exchange itself cut down lot of strikes . There ended many of these erroneous trades .
One solution zerodha already implementing is that pricing mechanism where it wont allow if its out of bounds 50-150 % of LTP . This alone had eliminated 99% erroneous trades .
The only downside is that zerodha not allowing me to open the OI .
I truly believe zerodha in last 6 months in the name of keeping fraud in check , made the platform too much claustrophobic. Beyond some point responsibility should be shifting towards lawmakers, exchanges and authorities .
I know my words sound harsh but as a trader since 2014 in zerodha i am feeling very very restricted .
Kindly allow OTM strikes as per exchange and red flag those erroneous trades / account and report.
I do understand social responsibility, but why should Zerodha be a mother to all these adults who are willing to lose money. For these trades put a small message which he clicks and accepts responsibility. Zerodha has done its part.
For one of my fav stock (Vedanta and Hindustan zinc) before buying, there is a message box which pops saying owners have pledged all of their shares (icici direct) . Users need to click before buying the same.
This is way it is these days. Disregard for security and personal responsibility to make the bucks. Then the regulators will create more hoops to jump through for us all.
Note the spell - it is wards - meaning you have already identified the ward no in KCG Hospital Bangalore. (General Ward and not even special ward)
All said and done, with the below point, you showed your love to Zerodha.
Disclaimer: Never understood one word of the actual content, (I am an Investor not a trader - dont like losing money) but liked the passion in which the author was trying to push his case, which got the boss man to reply. Great work.
Even before his reply i replied to you as well I still have lot of respect for them .
See all these rules generally are implemented by MBA grads who just do their job . They dont see how users feel it . All my curses are mostly towards them never to hurt anyone personally but end of day hardly 1% get profit here it has to shift atleast 2-3% this year thats my motto.
Having said that i softned coz he replied and willing to take up solutions he would have simply ignored a random user like me . This act commands respect . Thats why i am still here .
I think this is beyond your control. Same could happen for bank credentials and people could lose money - is the bank responsible ?
May be the fraudster is also reading this, but zerodha will not allow more than 1 session in 1 browser. So either they have to use many browsers or have multiple workstations with multiple browsers. Assuming that guy is in a different place than the victim - the IP address should give him away.
If you really want to save all your customers then you need to ask the tech team to design a VPN client that needs to run on the computer to open zerodha.
How may of the API clients share their credentials - i thought they were the smartest few !
