Should you sign up for free education programs by your stock broker?

There is a popular quote: "Nothing in life is free…at some point you have to pay the price."

Vishal Shah, a businessman from Mumbai, started day-trading and investing in equities without any prior experience and knowledge. In June 2017, he enrolled for a free month-long online course offered by a brokerage and started practicing as a professional trader once he was done.

After finishing the course, Shah started day-trading on stock ideas sent through messages, WhatsApp and mailers. Generally, most brokerages provide these services at no extra cost when you enrol for such free education programs or attend events conducted by them.

In the initial days, Shah could make a profit of Rs 10,000-15,000 from intraday trading through stock ideas sent by the brokerage he had enrolled with for the education program. Driven by greed to earn more profit, he started placing bigger bets in intraday trading and incurred major losses in March this year.

The novice trader booked losses of around Rs 9 lakh by the end of FY18, primarily because of excessive participation in intraday trading and considering himself a professional trader/investor by attending a free capsule course on trading in the stock market.

The only silver lining around this dark cloud, Shah said, was the lesson that even things that seemed free actually came at a cost.

Free courses steered by brokers These days, most brokerages conduct free courses and workshops under their investor education initiatives. The table below lists some of the ways in which educate investors.

Unsubscribe to stock ideas/tips from your broker Most brokerages send messages and mailers with stock ideas/tips for trading to customers as a part of their research offerings.

"By sending these mailers and messages, we ensure that the right information reaches the investors and they can make informed investing decisions. With newbie investors, the market and other investing options can be quite overwhelming. We endeavour to make it easy by simplifying the process," said B Gopkumar, Executive Director and CEO, Reliance Securities.

However, if you happen to be an impulsive buyer who relies on ideas sent through messages or mailers sent to you by a brokerage you took a free course from, it would be better for you to unsubscribe to these services sooner than later.

It is possible that you may still lack the expertise to analyse stocks recommended for intraday or short-term investing by your broker, despite having completed such capsule courses or attending some workshop for a few hours.

"It is advisable that investors give attention only to credible and authorised sources for any research and depend on the best for learning," said Abhishake Mathur, Vice President – Customer Service, ICICI Securities.

This can backfire big time.  "Asking brokers for stock research or ideas can be helpful, but trusting them completely can lead to more harm than good. Inaccurate trading information, incorrect news, breach of privacy, etc. are some of the issues an investor can face when he/she signs up for free courses with some brokers," said Gopkumar.

It is vital for an investor to either do his research about a broker thoroughly, or only stick to trusted platforms.

When signing up for a course, an investor should ensure its authenticity, and that of its source.

"Do an online search to confirm if the course offered has been taken up by others as well and what is their feedback and review. Applying wisdom and doing some online research will ensure that you sign up for authentic courses that add value to your investment decisions for long term wealth creation," said Arun Thukral, MD and CEO, Axis Securities.

While most investors enroll in such courses to enhance their own knowledge, the brokerages they enroll with may end up encouraging them to indulge in intraday trading by sending them stock tips and snippets on a regular basis.

In such a scenario, it is quite easy for a novice trader to believe he or she is a professional or an expert.

"Today, a large chunk of new traders enter the market with the belief of making quick money and free sessions from certain brokers promoting the same action plan instead of a systematic approach to making informed investments could lead to difficulties for the investor in the long or short run," said Gopkumar.

Day trading involves trading stocks with an aim to make short-term profits. It is difficult to succeed at day trading and investors who try it should consider several aspects before doing so.

Hasty decisions intended to save brokerage fees and taken without analysing the recommended stocks, can often lead to losses.

"A trade should not be driven by brokerage saving but by a strong analysis of the stock which can be studied with the help of robust big data driven platforms and credible research," said Gopkumar.