Can India Have Its GameStop Scenario?

23 February, 2021 | newsx bureau

The stock exchange speculation in the US which allows you to earn money online is not a viable option in India. But that is not necessarily a bad thing, experts say.

Benefits and Dangers of Online Money Earning Sites

When the news that a Reddit community of young investors managed to outplay seasoned Wall Street hedge funds hit the internet, many Indians started wondering whether we too could have a similar scenario on our stock markets. Industry experts started posting blog articles and editorial pieces on why it may seem easy to earn money online with new generation trading apps and platforms but is never an easy feat. Moreover, it is hardly good for the desi stock market stability in the long run. One of the main actors for retail investors is Robinhood, an online money earning site and app, which was also widely used in the Gamestop phenomenon.

Young and aspiring traders saw the GameStop stock gambit as an illustration of the possibility to beat the system, to outwit the large financial investment corporations. For others, it was an eye opening moment and a practical example of a legal way to earn money online. Yet, it comes at a cost and it’s worth understanding the essence of speculative stock trading.

More importantly, we have to understand whether the desi derivatives market allows for such trades – i.e. short selling and mass stock price speculation – and what are the potential legal implications of such actions. Because, fundamentally, the GameStop phenomenon was a piece of gambling online, legal on the US stock exchange and largely left unregulated. While it would be difficult to pull off with Indian company shares, given the rules and regulations safeguarding the financial system on the subcontinent.

But it has still raised the general interest in gambling options online, especially among young Indian professionals who browse Indian online casino reviews in search of opportunities to earn money online. However, binary trading options are prohibited in Bharat, while stringent SEBI regulations provide system stability to the National stock exchanges. Websites such as 10Cric are already offering bitcoin as a currency to gamble with.

Laws and rules prevent traders from manipulating stock prices and driving companies off the market by pulling resources together in a coordinated attack. While some aspiring traders might consider this a shortcoming, most business owners and experienced financial experts agree it is for the ultimate benefit of our capital market.

What Is a Short Squeeze and What Mechanisms Do We Have against It?

“Selling short” means betting against a company share price (the GME stock in this case) by offering stock which a trader does not own but has virtually loaned. What Reddit members of the WallStreetBets group did was to coordinate a pushback in a counter-attempt to manipulate the price of the company so it hit almost 20 times its original amount.

As a result, the hedge funds were made to pay for their initial attack on the company – they were squeezed short, having to compensate for the price hike. A number of investment funds even filed for bankruptcy. And no matter which side of the fence one stands, driving companies to bankruptcy by playing online games cannot sensibly be a good thing for market stability.

Fortunately, experts claim that regulations provided by the Securities and Exchange Board of India (SEBI) make it almost impossible to carry out such risky trade speculations in India. A formal Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market defines such unfair and manipulative acts and holds traders and investors accountable.

Moreover, surveillance mechanisms include the Stock Lending and Borrowing Mechanism (SLBM), the Market Wide Position Limit (MWPL) and a series of other contextual control triggers which limit concentration of stock, futures and options so that free float market capitalisation of companies could be seen as a reliable financial instrument in India.

While the dreams of making it big with an overnight online bet on stock prices may echo in some young aspirants’ minds, there are clearly much better ways to earn money from the internet than trying to manipulate the desi stock market.