According to a report published by SEBI a few months back, 90% of traders lose money in the stock market and only 5% make more than the FD rate.
What could be the reason for those people losing the money? Is it because of poor trading strategy? Or because of poor risk management?
Most traders trade in options just because it has the scope for greater return with lesser capital. Theoretically, we know that options trading is a zero-sum game. But it’s not really a zero-sum. When you look deeper, it’s a negative sum.
Under normal circumstances, excluding all external factors, you enter an options trade and exit at the same price, and you lose money. In this trade, even after entering and exiting at the same price, what makes you lose money? Here come the brokerage and Government charges.
Just to make it clear, consider that you are entering NIFTY options with 1800 quantities (quantity freeze limit) paying a premium of ₹100 and as far as risk management is concerned you maintain a 1:1 risk reward ratio. Stop loss at ₹90 and target at ₹110. What’ll the Net realised P&L for the month? It is -3435₹ (1.9% of your capital). The lesser the quantity size, the higher the % loss will be. For 900 quantities, it will be 2.7% of the capital. This is just from the option buyer’s view. Option sellers pay more charges in notional since they may enter some additional trades for hedge, adjustments etc.,
It reminds me of a famous saying about the casinos “The house always wins”. Stock exchanges and brokers always win the game and retailers are always left alone. Apart from these charges, IT should also be paid based on the respective slab you fall in.
So, before entering the #stockmarket, spend some 10 to 15 months of your time learning the process. Trade responsibly..
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