Harshad Mehta used the loopholes in stock market and the Indian banking system to make personal benefits and committed the biggest scam in Indian Financial History. However, he was neither the first, nor the only one. There are many loopholes in Indian stock market that traders can exploit to make gains.
Here are three of the common loopholes in stock market to make money that many traders and investors make use of.
Key Loopholes in Stock Market to Make Money
Here are some of the loopholes in stock market that are not popularly known to many traders and investors in India:
1. Arbitrage Trading
In simple words, Arbitrage trading can be defined as buying an asset in one market and selling it in another market in order to make profits based on the difference between the prices of the same asset in the different markets.
Arbitrage trading is based on a common loophole in stock market i.e. the difference between the price of the same stock on different markets and it is one of the impactful stock market loopholes.
For example, the below image shows the prices of Maruti Suzuki on the two biggest stock exchanges in India. The closing price of Maruti on BSE is Rs 9,167 and on NSE is Rs 9,173.
Here, the difference in the share price is Rs 6. However, when traded in big volume, traders can take benefit from this loophole in stock market to make bigger money.
(Source: Equitymaster)
2. Insider Trading
In order to make stock market trading efficient, the same information should be available to all the investors and traders and they should be rewarded based on their analysis. However, insider trading is another loophole in stock market that doesn’t care about this concept.
Here, some people who have the access to private information (which is non-public information) of the company like upcoming deals, results, etc, and take advantage of this knowledge to make profitable trades.
Insider Trading in India is governed by the SEBI Act of 1992. Any individual who is proved guilty of insider trading can be imprisoned for a maximum of 5 years and fined between Rs. 5 lakh to Rs. 25 crores or 3 times of the profit made whichever is higher.
However, there is not a clear methodology to catch and punish insider traders. Even many big stock market investors and traders have been charged with insider trading cases, however, have been released due to lack of evidence.
Insider trading is another of the loopholes in the stock market as the insider trading rules are not properly defined and implemented by Indian authorities.
Also Read: Pallav Sheth Scam – The Lesser Known Face of Scam 1992!
3. Telegrams Channels and FREE Calls
If you look around, there are Multiple telegram channels that offer free calls to investors and traders to make trades. In addition, investors can also find many FREE buy and sell calls through direct SMS or Whatsapp. Most of these free calls are used to push the prices or simply for “Pump and Dump” schemes.
There is no strict rule by the SEBI or any governing bodies in India to control these kinds of information or calls on social channels and many individuals exploit these loopholes in stock market to make personal profits.
In Closing
In this article, we looked into three of the common loopholes in stock market to make money which many investors and traders exploit. Though these methods can make some profit for some people, however, these are not the right ways to make money.
Instead of finding loopholes in stock market to make money, traders and investors should focus on building their knowledge and skills in order to make consistent returns from the market.
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