Social trading is a wider term where the user community is directly approached to interact for Social Trade related activities. It may include the data analysis, MLM schemes or other opportunity to find investors. With the increasing use of internet among masses and revolution in telecommunication industry, the social trading has become a driving force in most of the sectors though it’s forms may vary. With every webpage surfed by the users, we usually get to see pop ups and also mails which claim to provide easy ways to make money without much hassle.
The origin of the social trading can be traced back to multilevel marketing of products and nowadays it’s a giant business with a large population involved in it. Though the multilevel marketing’s sort of social trading was based on the profit sharing at different levels in the chain, one has to do some efforts for marketing of the products to make some extra bucks. Nowadays , Social trading has turned out to be a platform to attract potential investors which may also act customers for them. Though the investments by each single investor is very small an amount in comparison to the total capital of the project, the number of investors is found to be in lakhs or thousands. This in turn reduces the responsibility of the trading company towards debt clearance. However, the amount may seem to be a huge sum for the investor as mostly the middle and lower classed are attracted by such schemes. These schemes may come up with the offer of very high return in lieu of the investment.
The increasing rate of unemployment, distressed and uneducated youth of the country are the potential prey to such schemes. Such schemes boasts off making money without much work with a rapid rate of multiplication. On seeing one such advertisement over internet, I got to know that the way they present the whole setup and such promising delivery of their claim of multiplying money, reader at least once thinks of trying the same.
The lack of knowledge among the masses about the authenticity of schemes is a major cause of these social trades turning out to be scams. The social trading scams are mostly common in developing countries like India where people keep on thinking to ease their struggle full life by making some easy bucks. Some Ponzi investment schemes keep on running in the social circuit. The percentage of Ponzi schemes in the name of social trading is increasing. In recent past, we have witnessed live examples of such social trading scams in the form of Speak Asia and Socialtrade.biz where thousand crores of money were involved.
In India social trading in its actual sense is not allowed and is banned by SEBI. But the lack of monitoring mechanism and lack of clarity in distinguishing between the social trading and legal businesses over internet is somewhat foggy. The major problems that confront in social trading to the readers/investors have been enumerated in the subsequent sections.
What should we look for earning through investments as a layperson?
An investor must know certain facts about the investment to be made which includes the knowledge about the regulatory authority governing the investment, the value of the money which can be put at stake, knowledge about the person/company liable to repay the invested amount, what are the basis of the profit one is about to earn etc. Knowing these facts can save an investor form risking their money into Ponzi schemes.
What role can SEBI play to not to allow such social trade turn into a scam and in order to provide a protection to the investors interests?
The SEBI has proposed for bringing in changes which can be summarized as “No person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media such as WhatsApp, Facebook, Twitter, WeChat, ChatOn, etc. unless such persons get the registration done as an Investment Adviser or is particularly exempted from getting registration. No person shall organize or offer any such game/scheme /competition league on securities or related to securities market,” the SEBI paper said.
Sebi has also proposed a detailed ‘advertisement code’ for those who provide investment advice to review or check misleading advertisements assuring unrealistic returns in the securities market or to influence people’s investment decisions, as also for those organizing schemes, competitions, games and leagues on securities or related to securities market.
The proposal is yet to come into force. However, there is a dire need for bringing in some stringent mechanism and to provide clarity on existing guidelines for protecting the interests of innocent investors