Why individuals must invest long-term, avoid day trading & derivatives

91.1 percent of individual traders (about 73 lakh traders) lost money in the equity futures and options (F&O) segment in 2023-24

With enhanced awareness about stock markets, an increasing number of entities are now trading in equities. They could be corporates, domestic institutional investors (DIIs), foreign institutional investors (FIIs), foreign portfolio investors (FPIs), individuals, proprietorship traders, and others.

Let us examine the landscape.

Individuals: low on ownership, high on trading volumes

In terms of ownership, individuals are not the dominant category, owning 9.6 percent of NSE's listed  market cap (as distinguished from floating market cap) as of September 2024.

Besides this, the government owns 10.5 percent, foreign promoters hold 8.3 percent, and Indian promoters, as of September 2024, owned 32.8 percent of the market cap — these stakes, representing more than half the ownership, would typically not be traded in the secondary market.

But when it comes to trading volume, individuals comprise the biggest chunk. The individual category includes individual domestic investors, NRIs, sole proprietorship firms, and HUFs.

In the NSE cash segment (distinguished from derivatives), individuals comprised 35.5 percent of the traded volume in 2023-24. In 2024-25, till November, individual participation had eased marginally to 34.9 percent, but it's still the biggest share of the pie. The reason for this is the relatively lower volume of trade by the other categories of stockholders.

After individuals, proprietary traders (NSE members,  i.e., brokers, trading on their own account) generate the maximum trading volume  in the cash market. They have to specify their order as a client / proprietary trade.

In 2023-24, proprietary trades comprised 28.2 percent of the traded volume; in 2024-25 till November, it was marginally higher, at 29 percent. Other than this, as of November 2024, foreign investors comprised 14.8 percent of the traded volume, DIIs made up 11.7 percent , corporates 4.9 percent, and others 4.7 percent.

Trade share over a longer period

Comparing 2002-03 with 2024-25 (till November), we find the share of individuals remains similar — it was 36.6 percent in 2002-03, it is 34.9 percent currently. Over the same period, proprietary trade volume has eased from 42.5 to 29 percent, while the miniscule share of DIIs has increased to 11.7 percent. The share of FPIs has increased significantly as well, from 5.9 to 14.8 percent between 2002 to November 2025.

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Participation in derivatives

Participation in the equity derivatives segment is dominated by proprietary trades. In terms of notional turnover at NSE, prop trades comprised 60 percent of the volume in 2024-25 (till November). Trades by individuals were the next highest, at 25.2 percent. The other participants in this segment are FPIs (7 percent), corporates (4.7 percent), and others (3 percent). DIIs are conspicuous by their absence, with only 0.1 percent share.

Comparing the movement in derivatives over a longer period, we find the share of prop traders has increased from 46.2 percent in 2002-03 to 60 percent currently, while that of individual traders has eased from 33.5 to 25.2 percent now. The share of corporates has eased from 10.4 percent in 2002-03 to 4.7 percent currently, and the share of foreign investors has increased from about 4 to 7 percent.

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Why individuals must avoid day trading

Compared to individuals, day trading by proprietary traders in both the cash and derivatives segments is a different ball-game. They are professionals who spend their entire working day in the stock market. Foreign investors and proprietary traders typically execute their derivative trades through algorithms, which gives them an edge over individuals learning the ropes.

If you are an individual, unless you are a professional, you should invest long-term and avoid day-trading as well as derivatives.  SEBI (Securities and Exchange Board of India) has conducted studies on individual participants in the cash segment, analysing trends before and after the pandemic.

These studies found that:

• 71 percent of individual day traders made losses. The proportion increased to 80 percent for those with more than 500 trades a year.
• Average number of trades by loss-makers was higher than profit-takers.
• 90 percent of derivatives traders had incurred losses.
• Indeed, only 1 percent of individuals managed to earn profits exceeding Rs 1 lakh in derivatives. The author is a corporate trainer (financial markets) and author. Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.