More than 55% F&O traders buying more to average out losses: Study (2024)
The frenzy to trade in futures and options among newbie investors has landed up drilling deep holes in their pockets, and there were 4 major factors in play, according to a study conducted by Sharekhan.
The study done by Sharekhan found that 55% of the new traders have ended up buying more to average out their losses in trade. In fact, in 45% of the cases, it’s the lack of knowledge that left traders bleeding.
Recently, the Securities and Exchange Board of India (SEBI) issued a report, stating that 9 out of 10 individual traders in the equity F&O segment incurred an average loss of Rs 1.1 lakh during FY22, with most of them operating in the options segment.
A pan-India survey called ‘Serious About The Markets’ by Sharekhan revealed that 13% of the newcomers have incurred losses due to the lack of enough trading knowledge. Further, 32% of them claimed they couldn’t judge the market movement.
Around 40% of newbie traders claimed that their main reason for entering the F&O segment was due to the chance of making quick and easy money, and 48% of them believe that
30-50% of the people are consistently making ‘good returns’ from the F&O segment.
Dependence on Non-Professional Advice
Agencies
A significant 53% of the traders are spending their trading capital most often based on inputs from family and friends and mentions on social media/ websites/YouTube videos, which can lead to ill-informed trading decisions and increased risk.
Lack of Applying Strategies A startling 35% of traders claimed that they do not use or apply any specific trading strategy, which can often lead to risky trading decisions. Only 5% of traders claim they are using algo strategies provided by specialized companies/websites
Inadequate Use of Stop-Loss
Agencies
Only 42% of traders claimed that they use stop-loss in half of their trades, whereas 16% claim they use it very rarely, indicating a key component in managing trading risks effectively is not being used enough.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
The study done by Sharekhan found that 55% of the new traders have ended up buying more to average out their losses in trade. In fact, in 45% of the cases, it's the lack of knowledge that left traders bleeding.
Most F&O bets (around 90%) end in losses! Unlike buying a stock and holding it, F&O contracts have a deadline. If your prediction is wrong by that date, you lose your money.
The study, which analysed trading accounts from major brokerage firms, found that nearly 85% of young traders incurred losses within their first year of trading options.
It is best to avoid averaging recklessly because it can result in big losses. Prior to investing, one should carefully research and analyse a stock and the fundamentals of the firm, and one should also have a well-diversified portfolio.
It is carried out by acquiring more shares after there is a fall in the share price following its initial purchase. Buying more shares means the average cost of all shares held is lowered, and this leads to the breakeven point lowering as well.
Based on several brokers' studies, as many as 90% of traders are estimated to lose money in the markets. This can be an even higher failure rate if you look at day traders, forex traders, or options traders.
In an attempt to recover losses quickly, traders often place more orders than usual or trade with higher volumes. This behaviour increases the risk and can lead to a vicious cycle of losses as it often involves making impulsive and poorly thought-out trades.
The reason an average of averages is wrong is that it doesn't take into account how many units went into each average. For example: Let's say we only have orders in 2 states, New York and Pennsylvania. The average cost of the product in NY is $100, and the average cost in PA is $50.
Averaging down the price of a stock is a high-risk strategy that can worsen an existing investment loss. Doing that means your net worth declines, as does portfolio performance and quality, while risk increases. Although buying stocks on sale can be successful, averaging down on a proven loser rarely works.
An example of an average down stock strategy is buying 100 shares at ₹100 each, then buying another 100 shares at ₹80 each, reducing the average cost per share to ₹90. This strategy lowers the break-even point for the investment. 5.
The time decay results in a loss for the option buyers and the option sellers profit from it. So, when you buy and sell options simultaneously, the time value that you lose in the bought option position will be offset by the gain in time value in the short option position. In this way, your losses can be minimized.
What is a Bank Nifty No Loss Strategy? The Bank Nifty no loss strategy is designed to protect traders from incurring significant losses while participating in the Bank Nifty index. The core principle of this strategy is to use options to hedge against potential downsides.
Having a stop-loss order on shares you own, particularly the more volatile stocks, has been a mainstay of advice on this subject. The stop-loss order prevents emotions from taking over and will limit your losses.
The futures and options (F&O) market is a complex and risky market, and it is no surprise that 9 out of 10 traders lose money in it. There are many reasons for this, but some of the most common include: Lack of knowledge: Many traders enter the F&O market without a good understanding of how it works.
Out of the 45.24 lakh individual traders in futures and options (F&O) in the financial year 2021-22, only 11% made profit, shows a report by Securities and Exchange Board of India (Sebi). Out of the total participants, the number of individual active traders stood at 39.76 lakh (88%).
As much as 95 per cent of day traders lose money in the market, it demands an investigation. Intraday trading is the most popular, yet data suggests that most intraday traders lose money. A 70 percent don't last beyond the first year, and 95 percent stop trading by the third year. The number seems pretty high, right?
F&O trading carries significant risks due to leverage and price volatility. Risks include market fluctuations, liquidity issues, and unexpected events affecting prices.
Address: Suite 492 62479 Champlin Loop, South Catrice, MS 57271
Phone: +9663362133320
Job: District Sales Analyst
Hobby: Digital arts, Dance, Ghost hunting, Worldbuilding, Kayaking, Table tennis, 3D printing
Introduction: My name is Kieth Sipes, I am a zany, rich, courageous, powerful, faithful, jolly, excited person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
Agencies