New Delhi: Markets regulator SEBI’s report of futures and options trading has thrown up some worrying trends in the form of 93 per cent traders incurring losses on their trades. Moreover, the average loss per person was Rs 2 lakh fro these traders, according to the report.
In fact this has expanded from 89 per cent loss-making traders in SEBI’s previous report. Moreover, nearly 50 per cent of the loss-making trades were made by traders aged under 30 years. So, why are market participants flocking to the F&O segment despite incurring heavy losses?
What are pitfalls of F&O trading
According to Economist Sharad Kohli, F&O goes under derivatives trading, also called speculative trading. Traders who seek to get rich quick get carried away by this category of trading and rely on their instincts or whims instead of seeking expert advice.
Kohli warned that F&O trading is indulgence-based. “F&O trading is almost like gambling. It is also addictive. IF you make gains once, you may want to invest again. Once this becomes a habit you may end up channelling all the money earned back into these trades.”
Another troubling statistic from the SEBI report was that 76 per cent of the investors who incurred losses had a declared income of up to Rs 5 lakh. Kohli said that the SEBI report shows only 2 categories of traders who made money in F&O, namely algo traders and big players such as foreign institutional investors.
Small vs big traders
A lot of the loss-makers were from the call and put the buyer category in the options market. Call and put sellers in the options market are financiers and underwriters who have institutional heft, said Kohli. However, the loss-makers incurred losses of over Rs 1 lakh indicating that they were small traders. He added that even those who earned over Rs 1 lakh from these trades seem to have quit the market before incurring losses.
Smaller investors are losing money since they are entering the trading segment without any guidance from experts. Youngsters are also losing money by pursuing a risky way to make money by counting on opinions received from social media which experts or SEBI registered advisors do not back. It is not possible to get rich quickly, added Kohli. Retail market participants should take the investor route instead of the trader route, he added.
Choose investing over trading
Investors should pick up stocks which have growth potential based on advice from SEBI-registered financial advisors, instead of following fininfluencers. Long-term investments yield higher returns, contrary to the mentality of turning rich overnight.
Equity mutual funds also offer a safe route to enter the stock market, since MF managers conduct the due diligence to help your money grow, said Kohli. In some instances, investors purchased a block of shares in a company and forgot about them for 20 years only to find that the money had grown exponentially. This is the power of compounding and investing over the long term, said Kohli.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO and Mutual Funds.)
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