Compound share

Gambling mindset grabs a fair share of Indonesian investor behavior

The recent popularity of binary options trading has seen many oblivious Indonesians lose large sums and has blurred the line between investing and gambling.

Professional traders warn that a similar confusion can also arise with legal financial instruments, as new lucrative proposals are attracting a growing number of retail investors to Indonesia.

A binary option requires the user to guess the price of an asset – be it a stock, cryptocurrency, commodity or exchange rate – and place their money on it.

The Financial Services Authority (OJK) has declared binary options trading illegal and the Commodity Futures Trading Regulatory Agency (Bappebti) has started to crack down on the practice.

Bappebti warned investors that they could lose their money on such instruments as there is no formal resolution mechanism. In a press release earlier this month, Bappebti’s acting chief, Indrasari Wisnu Wardhana, called binary options trading “a gambling system disguised as an investment.”

Last year, Bappebti banned 92 web domains selling binary options, including the infamous Binomo promoted by online influencers. During the same period, the agency blocked 1,222 sites or platforms falling under the commodity futures category.

Checking the legality of a product or platform can help investors avoid dangerous or fraudulent options, but it may not be enough to avoid crossing the fuzzy line into gambling territory.

“Legal and normal investing activities, like in the stock market, could also be akin to gambling, depending on how we do it,” said Desmond Wira, a full-time trader and author of several best-selling investment books, at the Jakarta Post last week. .

The capital market is one of the most enigmatic sectors for Indonesians. Capital market literacy in the country was only 4.9% of the population surveyed by OJK in 2019, while knowledge of other businesses was at least three times higher.

OJK data also shows that literacy in capital markets has increased by only 1.1 percentage points over the past decade, while literacy in banking has increased by 14.32 points. percentage.

Knowing the risks and how to control them was the first task for investors, Desmond said, otherwise any other decision would be just speculation and gambling.

With stocks, this basic knowledge relates to the details of the company purchased, such as its sector, outlook and performance. Even a seasoned trader should make a proper plan and monitor price trends closely to avoid over-speculating.

“Buying stocks purely on sentiment is actually gambling,” he said.

Using borrowed money in hopes of quick wins could also encourage gambling behaviors, Desmond said, because a decline in the stock price, for example, would aggravate debt burdens.

Many Indonesians experienced this at the start of 2021, as they got stuck in debt when stock prices fell.

Ariston Tjendra, a money market analyst and forex trader, said last week that another example of gambling was decision-making based on the influence of friends or public figures.

“We have to be critical of every investment offer or opportunity. Make sure to always challenge and learn,” Ariston said.

In 2021, several public figures showed off their Indonesian stock portfolios, stoking bullish sentiment and enticing others to follow their trades. Many retail investors ended up buying at high prices, only to see the market turn bearish.

In late 2021 and early 2022, several online influencers gave ostentatious testimonials of their success in binary options, with some showcasing the wealth allegedly gained from such investments.

Besides this dubious but legal hype, Ariston also warned against fraudulent promises of easy passive income through algorithmic trading, also known as trading robots.

In some cases, he said, the operations behind them were simply Ponzi schemes, in which a person’s supposed winnings were simply taken from the funds of subsequent entrants. Bappebti closed 336 of these operations in 2021.

Eko Endarto, financial planner and founder of Financia Consulting, told the Jakarta Post last week that sticking to an investment plan could prevent investors from making gambling-like decisions. at least a year instead of days or even seconds.

The plan should also be evaluated periodically, as trends and sentiment may change.

Eko added that a newcomer should consider starting with a small amount rather than contributing all available funds directly. He noted that each person had a different risk tolerance, which needed to be developed gradually.

“Even if you decide to bet on something, always start small, because you start learning the risks,” Eko said.