Moneycontrol Pro Panorama | Equity traders get the rough end of the stick

But then, the savvy investors always knew this. Short-term trading, when not approached through a process-driven route, is nothing short of gambling. Indeed, viewed from that perspective, it’s a wonder that the success rate in gambling or buying a lottery ticket is much lower than that in stock trading.

For most, the game is also not worth the candle. During FY22, 11 percent of individual traders made a profit with an average profit of Rs 1.5 lakh. The percentage went down marginally to 10 percent for active traders, though the average profit made by them went up to Rs 1.9 lakh during the same period. In short, the average trader made a profit of only Rs 15,833 per month, which is barely enough to survive, assuming trading is the only activity they do.

But Indian traders may be doing better than their international brethren. According to a study in Brazil conducted by researchers at the Sao Paulo School of Economics and the University of Sao Paulo, only 3 percent of traders make money and under one percent do better than minimum wage.

A report published by Tradeciety quoting various sources says 40 percent of traders in the US do not last beyond a month, 80 percent quit within the first two years and only seven percent remain after five years while one percent of all traders are profitable net of fees.

South Korea, which has 40 million trading accounting in a country with a population of 50 million, also has a similar percentage according to media reports, though no authentic research has been carried out.

The number of individual traders coming to the market has increased across the globe, especially after the pandemic. The greed for easy money in a bull market has historically sucked in a lot of traders, only to throw them out in a bear market.

So, why do individual traders come to the market when the overall success rate is so small? One reason why trading attracts individuals is the low entry barrier -- anyone with a demat and a bank account can open a trading account and start trading. But what these individuals forget is trading is like any other business, it requires a plan, a strategy with an edge, proper money and risk management in place.

Those few who have these traits are reaping money. SEBI’s data show that the top 1 percent and top 5 percent active profit makers accounted for nearly 51 percent and 75 percent, respectively, of the total net profit earned by all active profit makers. Trading is a zero-sum game where the participants lose the money collected by the winners.

We at Moneycontrol Pro have interviewed many such successful traders in our GuruSpeak column. Most of these traders come from humble backgrounds and had been loss-making traders for many years before making it big by their pragmatic approach to the market. Like in all professions, a few success stories attract many other aspirants. The same goes for the market. But most individuals do not realise the path to success is paved with hard work, discipline and loads of luck.

Today’s Budget Snapshots puts the spotlight on home sales, which saw a smart bounceback in 2022 in spite of the increase in home loan rates. The question now is: Will demand for homes continue to grow in the face of higher interest rates and higher prices? Against this backdrop, the role of the Union Budget 2023 is critical.

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Shishir Asthana
Moneycontrol Pro