The American financial system is structurally designed to accommodate, and often actively encourage, speculative behaviour. Indian markets, by contrast, are deliberately constructed to restrain it.
Both approaches are extreme in their own way, and both reveal important truths about how societies think about risk, capital, and their broader social priorities.
In the United States, speculation is not merely tolerated, it is institutionalised. Retail investors can easily access leveraged ETFs, ultra short dated options, margin borrowing, and a wide range of complex instruments that magnify both gains and losses.
These products are liquid, highly visible and widely acceptable within the financial ecosystem. Their availability is not accidental.
It reflects a regulatory mindset that believes disclosure and individual choice matter more than placing hard limits on behavior. When excess occurs, it is largely accepted as an unavoidable cost of progress.
India has chosen a very different path. In India, leverage is tightly controlled, settlement systems are designed to limit excessive churn, and product complexity is carefully filtered before it reaches retail investors.When speculative activity rises sharply, regulators are quick to step in and slow things down. The underlying assumption is straightforward. The underlying belief is simple. In the Indian context, the systemic and social risks of unchecked speculation are seen as far greater than the benefits it might deliver.
History helps explain why these two systems evolved so differently. In the United States, the stock market crash of 1929 was not just an institutional failure, it was a mass retail event.
Middle class households participated heavily, often using borrowed money, and many suffered severe losses. Yet this experience did not lead to a lasting retreat from speculation.
Instead, it reinforced the idea that households are participants in both booms and busts, a pattern that continues to this day.
India never allowed speculation to penetrate household finances at that scale. Savings here are not viewed purely as individual wealth. They represent family security, intergenerational capital, and an informal form of social insurance.
A major financial loss, therefore, is not simply a market lesson. It can become a long term social setback. Indian market design reflects this reality.
Structural factors further deepen these differences. In the United States, retirement security is closely linked to market performance, which pushes households into financial markets out of necessity and blurs the line between investing and trading.
In India, stronger family based support systems reduce that pressure and allow households to approach risk with greater caution.
Neither model, however, is without its flaws. The American system delivers exceptional innovation, liquidity, and capital formation, but it also produces recurring bubbles and periodic damage to household balance sheets.
The Indian system offers resilience and stability, but often at the cost of speed, experimentation, and market depth.
The answer does not lie at either extreme.
A more sustainable model sits somewhere in between. It encourages long term investment and innovation, while placing firm boundaries around leverage, product complexity, and financial gamification at the household level.
Speculation cannot be eliminated, nor should it be. But it must be contained, properly contextualised, and aligned with social realities.
America shows what happens when speculation is industrialised. India shows what happens when it is treated with deep caution. The optimal financial system borrows America’s dynamism without importing its excesses, and India’s prudence without allowing growth to stagnate.
Markets ultimately work best not when risk is glorified or suppressed, but when it is understood, priced sensibly, and kept within limits.
(The author Feroze Azeez, Joint CEO, Anand Rathi Wealth Limited)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)