Look for the traps while signing up with a stockbroker

Posted By : Balaji Rao

When I was passing through the maze of racks filled with jams, biscuits, noodles and the likes in a super market pushing a heavily pregnant looking trolley that was brimming with items, I happen to see nicely piled heap of one litre tetra-pack orange juice, about 100 of them. There was a boldly written marketing message displayed on a placard that read – Buy one Get Two Free. Wow! There were many shoppers around me who were scampering towards the pile of tetra-packs and were loading their already loaded trolleys; they were in such a hurry to take every pack that was on the rack.

Having spent most of my career in marketing I felt that there was something beyond what I saw as the offer. I managed to pick one of the packets, turned it around and while scanning what was written on the rear side of the packet I saw that the expiry date was the next day. No wonder the offer was juicier than the juice itself!

To my surprise none of the people who were dumping the packets into their trolleys bothered to check the expiry date, because their mind was focused on the offer than the expiry date. That’s how marketing is done, you see!

This example is something that’s relevant for those traders or diehard speculators in the stock market that they fail to see the hidden agenda behind offers that scream of offering lowest brokerage or no brokerage at all for the first few trades or for the first one lakh volume or so. This is a trap, literally.

Let me tell you another real incidence that I experienced in Macau, Hong Kong while on a holiday; Macau is the paradise for gamblers, a glittering city bustling with 24 hours of activity particularly for those who are addicted to gambling and also for those who are aspiring to get addicted!In the hotel that I stayed all the guests were offered a complimentary HK$50 (Hong Kong 50 dollars) coupon that they can redeem at that casino that is inside the hotel premises itself (I am not sure if the hotel is built because of the casino or the casino is built because of the hotel).

Guests who are already fantasizing about gambling are infused with a shot of steroids or cocaine with this complimentary coupon. As soon as the check-in formalities are completed the next thing the guest would do is to dart towards the casino escalators that takes them straight into the gambling tables. Now the drama starts. Without any prizes for guessing, the free dollars given is lost within the next few minutes which hurts the ego of the person and his legs are invariably dragged to the counter that sells the tokens for exchange of cash. This is how the magic of “free” works in every damn business.

When a stockbroker advertises that the first few lakh of volume is free or for a very nominal brokerage it is a trap that invariably induces the trader to go for the next level of volume and the brokerage charges start going up and this is precisely what is the plan behind the offer. It’s all about making someone getting addicted and such offers have by and large made people to fall for it just like a teenager falls for a wink by a beautiful girl.

Be careful and also mindful before you are made a trading addict by a smart broker; read the fine lines and read between the lines. In the end, whether you win or lose, broker is the ultimate winner because he holds all the aces in his hands!!

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