More than 55% F&O traders buying more to average out losses: Study

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.

Factors Driving Losses:
Misplaced Expectations

Agencies

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.

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