Hi Chandru,
I am happy that some one has brought up this issue.
Although i have fortunately not been on the receiving end but i have helplessly seen people lose in the similar fashion that you have mentioned.I believe the structure of the industry(brokerage business) in general is to be blamed.Broking houses come up with offices every where and hire people(relationship managers)to generate brokerage.These guys have little knowledge about markets and trading, to be very modest.They need to generate revenue which is mostly in form of brokerage to keep their jobs this results in miss-selling ,i.e selling a product to some one who is misfit for the same.For example selling a derivatives account to a man in late fifties who has retired and has limited resources , making him trade aggressively to generate brokerage.Frankly this man would have no business with derivatives he may be just better putting money in some select stocks to balance the portfolio.But this would not generate money for the broking house.Once he starts trading he succumbs to the psychological pressure of mkts only to thrown out when he is ruined.
Its not only with the new guys that fall pray to such brokerages even the people with experiance are lured by RMs into wrong kind of trading.People need to understand that these RMs are no expert on mkts but only in selling the products.Trading is a serious business and only ment for professionals.Others should be better of investing for a longer period of time similarly to the way that one does in Fixed deposit.There is a difference in trading and investing the former is a business for making money while the latter is parking the money earned from the business.I do not have anything against people entering the trading business but they should be aware of the risk and financial suitability.The regulator needs to be more strict on trade authorization process against the discretionary trading done by staff of brokerages with money of innocent people.Also on the n number of self proclaimed trade gurus mushrooming with third grade websites these days.
Consolidation in brokerage industry is an absolute must even for the investors.Look at the developed economies like US for instance they only have a handful of large brokers and that to are clearly divided in the service that they provide,Like discount brokers,full-service brokers etc.If the cost structure becomes clearer for the broking houses they will may be not put so much of pressure on their clients.
Having said all even the people getting fooled are equally responsible for the damage done.As its their ignorance that leads to their fall.
People with brokerages might find this offensive but i do not intend to hurt anyone i have just written what i understand.
Regards
