I was literally shocked when I saw this notice first time on my Zerodha platform. And, from then on I have been seeing this message again and again whenever I login into it. The message is something like that “9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses…….”
I went through the entire message that elaborated that on an average, loss makers registered net trading loss close to ₹50,000. On top of that, loss makers incurred an additional 28% of net trading losses as transaction costs. Those who are making net trading profits, have to bear a transaction cost that ranges in between 15% to 50% of such profits.
Actually, this was taken from SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”. In the cutthroat world of F&O trading, success is elusive. The SEBI study uncovers a disheartening statistic - a staggering 90% of individual traders faced net losses in the fiscal year 2021-22. The dream of making it big has turned into a nightmare for the majority.
I can feel the pain of retail traders, especially the young traders who have started their trading journey recently. Maybe they are emerged during the Covid pandemic and looking for quick money without realizing the pitfalls of trading F&O market, particularly options market. I have heard that a large number of novice traders joined Robinhood during that period.
Not only that, I went through a study of eToro traders that revealed that approx 80% of active traders on the platform lose money with an average negative return of -36.3% over 12 months. A Brazilian study found that 97% of traders who day trade for more than 300 consecutive days lose money, and only 1.1% earn more than the Brazilian minimum wage. A SEC (Securities and Exchange Commission) study also found that 70% of Forex traders lose money every quarters, and on average 100% of a retail traders investment is gone within 12 months. This is shocking, isn’t it?
Ultimately, the specific figures don’t matter much because the lesson is clear. You’re going to have to do something to separate yourself from the majority if you want to be a successful stock trader.
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In fact, I was in their shoes a few years back. I used to be an options buyer and was a terrible loser. It sounds incredible to be options buyers because of its low-cost entry and limited loss theory. But, it’s like slow poison that sucks money slowly and makes the trader’s life thorny.
Despite of riding a trend most of the time, I was not able to make money from options. Why? This is because the market can trend sideways sometimes in a trending market. And, that causes premium deterioration drastically, especially weekly options. This is the mistake the novice traders do frequently. Ever since I started adopting the Price Action technique, alongside with Elliott Wave method, my options trading transformed exceptionally.
On the other hand, Futures trading is not like options where premium decay is our main concern. But, in futures we have to pledge a large sum of money as margin and everybody wants to avoid margin call where there is drastic fall or a wild upswing.
The stock market is like a thrilling roller coaster ride, full of ups and downs that can disrupt emotional balance of a trader. Amidst the clear-cut statistics there lie countless human stories. The SEBI’s study highlights how individual traders struggled with this emotional turbulence. It emphasizes the importance of diligent research, risk management, and financial discipline. It reveals that the stock market is not a shortcut to wealth but a challenging arena that demands skill, perseverance, and resilience.
The SEBI study paints a realistic picture of the challenges faced by individual traders in the F&O segment. Behind the numbers are real people with real dreams. It serves as a timely reminder that success in trading is not just about luck; it's about mastering the art and science of the market, managing risk, and keeping emotions in check.
While the odds may seem stacked against us, it's important to remember that success in trading comes with dedication, knowledge, and a willingness to adapt.
By adopting sound risk management practices, and honing our trading skills, we can carve our path to profitability. The road might be bumpy, but with perseverance and the right mindset, we can turn the tide and unlock the potential of equity Futures and Options trading.
Remember, fortune favors the prepared trader! So, equip adequately, and let the journey to trading success begin. Happy trading!
