Indonesia’s tossing small investors into the deep end with a new trading instrument that lets them bet big on its top stocks. The catch? They could win a lot – or lose everything.
Unlike India, which has put the brakes on risky bets, Indonesia’s charging ahead with blue-chip derivatives. These highly leveraged contracts let investors make bets on single stocks with just a tiny fraction of the upfront cost.
And while that sounds like a good deal, one wrong move could wipe you out. With a market full of under-40 traders, IDX (Indonesia’s exchange) says the move is all about bringing in fresh money, but experts are waving caution flags.
These single-stock futures contracts trade at a fraction of the real stock’s price, helping investors to bet on a rise or fall in the value of an asset.
Here’s how it works: Let’s say you want to bet on BBCA, one of the bigger stocks in the game. Instead of forking over 10 million rupiah ($632) for 1,000 shares, you can shell out just 4% of that. If the stock rises 1%, you score 100,000 rupiah.
But if it drops 4%, your entire bet evaporates.
The stocks getting these futures contracts include heavyweights BBRI, BBCA, TLKM, MDKA, and ASII – the most liquid stocks, meaning many investors actively trade these counters. They are part of the LQ45 index, which consists of companies with the highest market cap in Indonesia.
Not for profit
“Don’t go all-in,” warns Ratih Mustikoningsih, a financial pro at Ajaib Sekuritas, one of only three exchanges licensed to sell these high-stakes contracts.
Derivatives are designed as hedges, not as profit machines, and if you’re using them just to play the market, you’re deep in speculation territory. Financial advisors will tell you that buying and holding stocks or ETFs is still the best way to build wealth in stock markets.
India, meanwhile, has gone the opposite route, pressing the brakes on individual investors jumping into derivatives after seeing losses hit $5.4 billion last year – an average of $1,468 per person in a country where the per capita GDP is $2,300.
This year, India’s regulator hiked the minimum trade size, making it tougher for small investors to get involved. Indonesian traders best take note.
