Seven of the ten intraday trades in the Cash Segment Were Losses in FY23, According to SEBI

Introduction

The Securities and Exchange Board of India (SEBI) has unveiled a stark reality of the intraday trading landscape in its recent study. According to SEBI, seven out of ten intraday trades in the cash segment incurred losses in the financial year ending March 2023 (FY23). This revelation is a wake-up call for young traders, as the study highlights that a significant majority of these traders are under 30 years old.

Understanding SEBI’s Study on Intraday Trading

What is Intraday Trading?

Intraday trading is the buying and selling of equities on the same trading day. The objective is to profit from momentary price changes.

Purpose of SEBI’s Study

The study conducted by SEBI’s Department of Economics and Policy Analysis aimed to analyze the trading patterns and outcomes of individuals in the intraday cash segment over three fiscal years: FY19, FY22, and FY23. Intraday trading is the buying and selling of equities on the same day. The objective is to profit from momentary price changes. The study conducted by SEBI’s Department of Economics and Policy Analysis aimed to analyze the trading patterns and outcomes of individuals in the intraday cash segment over three fiscal years: FY19, FY22, and FY23.

Key Findings of SEBI’s Study

Loss-Making Trends in Intraday Trading

SEBI’s study revealed a concerning trend: 71% of individual traders engaged in intraday trading in the cash segment ended up making losses. This statistic underscores the high-risk nature of intraday trading, especially for inexperienced traders.

Age Demographics of Traders

One of the most striking findings of the study is the age distribution of loss-making traders. It was found that the younger the trader, the higher the likelihood of incurring losses:

• Traders under 20 years had the highest proportion of loss-makers at 81%.
• Traders over 60 years had the lowest proportion of loss-makers at 53%.

Growth in the Number of Traders

The number of individual traders engaging in intraday trading through the top 10 brokers increased significantly, from 15 lakh in FY19 to 69 lakh in FY23, marking a 4.6-fold increase. Despite this growth, the majority of these traders were not profitable.

Gender and Profitability

The study also highlighted gender differences in trading outcomes:

• The proportion of female traders declined from 20% in FY19 to 16% in FY23.
• However, female traders consistently showed a higher proportion of profit-makers compared to male traders across all three years.

Factors Contributing to Losses

High-Frequency Trading

Abhishek Kumar, an RIA and founder of Sahaj Money, pointed out that high-frequency trading mechanisms used by financial institutions skim the arbitrage opportunities that were once available to intraday traders. This makes it increasingly difficult for individual traders to turn a profit.

Psychological Factors

Manuj Jain, CFA and Co-Head of Product Strategy at WhiteOak Capital AMC, noted a positive correlation between the frequency of trading activities and the likelihood of incurring losses. This loss aversion bias, where the pain of losing is more intense than the pleasure of gaining, often leads traders to make more trades without proper analysis or strategy.

Impact of Trading Frequency on Outcomes

Correlation Between Trading Activity and Losses

The study indicates that traders who trade more frequently are more likely to incur losses. This suggests that overtrading, often driven by the desire to recover from losses, can exacerbate the financial setbacks.

Demographic Insights

Comparison of ‘Single’ vs ‘Married’ Traders

The study found that married traders had a higher proportion of profit-makers compared to single traders across all three years. This could be attributed to a more conservative and strategic approach often adopted by individuals with family responsibilities.

Regional Variations in Profitability

Profit-making trends also varied by region, with Tier-I cities showing the highest proportion of profit-makers, followed by Tier-II and Tier-III cities. This may reflect differences in access to information, resources, and education about trading strategies.

SEBI’s Recommendations for Individual Traders

Educating Young Traders

Given the high proportion of young traders and their propensity for losses, SEBI emphasizes the need for better financial education and training for young individuals entering the market.

Encouraging Strategic Trading

SEBI recommends that traders adopt a more strategic approach to trading, including thorough analysis and risk management practices, rather than engaging in impulsive trading activities.

Conclusion

SEBI’s study sheds light on the harsh realities of intraday trading in the cash segment. With a significant majority of traders, especially younger ones, incurring losses, there is a clear need for improved education and strategic approaches to trading. The insights from this study serve as a crucial guide for individuals looking to navigate the complexities of the stock market.

FAQs

What is the proportion of loss-makers in intraday trading according to SEBI’s study? SEBI’s study found that 71% of individual traders in the intraday cash segment made losses in FY23.

How has the number of intraday traders changed over recent years? The number of individual traders engaged in intraday trading through the top 10 brokers increased from 15 lakh in FY19 to 69 lakh in FY23, a 4.6-fold increase.

What is the impact of age on intraday trading losses? The study revealed that younger traders are more likely to incur losses, with 81% of traders under 20 years old making losses compared to 53% of those over 60 years old.

How do trading outcomes differ between male and female traders? While the proportion of female traders declined from 20% in FY19 to 16% in FY23, female traders consistently had a higher proportion of profit-makers compared to male traders.

What regional differences were observed in trading profitability? The proportion of profit-makers was highest in Tier-I cities, followed by Tier-II and Tier-III cities, indicating regional variations in trading success.

What psychological factor influences the trading behavior of loss-making traders? Manuj Jain highlighted a loss aversion bias, where traders who have incurred losses tend to engage in more trades to avoid the emotional discomfort of those losses, often without proper analysis or strategy.

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