India's biggest stock market broker Zerodha has warned investors not to share their login credentials with anyone enabling others to trade on their behalf. The stock broker said it has seen a rise in scams recently where investors expose themselves to the huge risk of a fraudster who can create a loss in their accounts using non-genuine trades and move their money to another trading account.
Zerodha gave an example how scammers to place illegitimate trades, which may land investors into trouble.
"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."
Zerodha's advice: "If you don’t understand options, don’t trade them even if someone is asking you to. Options are risky and you need to understand them well before you trade them."
The broker added: "If you had given access to someone who has created such an artificial loss, you can lodge a police complaint against the fraudster, let our compliance team know about it, and we will help you with the case."