Introduction
The Securities and Exchange Board of India (SEBI) recently released a comprehensive study detailing the performance and behavior of individual intraday traders in the equity cash segment for the financial year 2022-23. The findings shed light on critical trends, risks, and patterns among these traders, highlighting significant areas of concern and interest.
Key Findings
Losses Among Traders
The study revealed that a significant majority of individual intraday traders faced losses:
· Over 70% (7 out of 10) of individual intraday traders incurred losses.
· The proportion of loss-makers increased to 80% for traders who engaged in very frequent trading activity (more than 500 trades in a year).
· Younger traders (under 30 years old) had a higher percentage of loss-makers (76%) compared to other age groups.
· Loss-makers had higher average trades than profit-makers and incurred additional trading costs amounting to 57% of their trading losses.
Surge in Participation
Despite the high rate of losses, participation in intraday trading saw a substantial increase:
· There was a 300% increase in the number of individuals participating in intraday trading in FY 2022-23 compared to FY 2018-19.
· One in three individuals trading in the equity cash segment engaged in intraday trading.
· The share of young intraday traders (under 30 years) grew to 48% in FY 2022-23 from 18% in FY 2018-19.
Trading Costs - The study also examined the costs associated with trading - Profit makers spent 19% of their trading profits on trading costs in FY 2022-23.
Expert Opinions
Experts highlighted the increasing difficulty for individual traders to profit from intraday trading due to high-frequency trading mechanisms used by financial institutions. These mechanisms exploit arbitrage opportunities that were previously available to individual traders & observations support SEBI's findings that most individuals lose money in intraday trading.
A market expert noted significant point from the study: the positive correlation between a higher number of trades and loss-making traders. This correlation suggests a loss aversion bias, where the psychological pain of losing is more intense than the pleasure of gaining. As a result, traders who incur losses might engage in more trades to avoid the emotional discomfort of those losses, often without proper analysis or strategy whereas another expert stated that the SEBI study complements an earlier report highlighting the risks of derivatives trading, where 90% of traders made losses. Despite these findings, derivatives trading volumes have increased. The expert also suggested that a multi-faceted approach, similar to anti-smoking campaigns, is needed to address these issues effectively. This approach should involve stricter regulations, higher taxes, and behavioural interventions.
Detailed Study Insights
A study by SEBI, conducted by the Department of Economics and Policy Analysis, examined individual trading in the intraday cash segment during FY19, FY22, and FY23. Here are some key findings from the study:
·Increase in Individual Traders - The number of individual intraday traders with the top 10 brokers surged from 1.5 million in FY19 to 6.9 million in FY23. Despite this growth, 71% of these traders experienced losses.
·Gender and Marital Status Insights - The proportion of female traders decreased from 20% in FY19 to 16% in FY23. However, female traders consistently had a higher percentage of profit-makers compared to male traders each year. Married traders consistently had a higher percentage of profit-makers than single traders across all three years.
·City-Wise Profitability - Among the 13 sample cities analysed from FY19 to FY23, tier I cities had the highest percentage of profit-makers, followed by tier II and tier III cities.
SEBI's study provides a detailed and revealing look at the challenges faced by individual intraday traders in India's equity cash segment. The findings highlight the risks associated with frequent trading, especially for younger traders, and underscore the need for increased awareness and possibly more robust regulatory measures to protect individual investors.
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