SEBI's Analysis of Profit and Loss of Individual Traders in F&O

[rickyrajesh]

From https://www.sebi.gov.in/reports-and...rs-dealing-in-equity-fando-segment_67525.html

Losers​

• 9 out of 10 individual traders in equity F&O segment incurred losses.
• 90% of the active traders incurred average losses of ₹1.25 lakh.
• For the group of active traders (excluding outliers), the average loss of a
  loss maker was over 15 times the average profit by a profit maker during
  FY22.

Winners​

• The top 1% and top 5% active profit makers accounted for nearly 51% and 75%
  of the total net profit earned by all active profit makers, respectively.
• Excluding outliers, only 6% of individual active traders made profit. With an
  average profit of nearly ₹3,400 in FY22.
• 11% of individual traders in equity F&O segment made profit with an average
  profit of ₹1.5 lakhs.

Transaction Costs​

• Over and above the net trading losses incurred, loss makers expended an
  additional 28% of net trading losses as transaction costs (for the group of
  active traders)
• For non-active traders who made losses, the percentage was significantly low
  at 8%.
• Even those making net trading profits incurred between 15% to 50% of such
  profits as transaction cost.

Clueless or Gamblers?​

• Youngest age group (

 

[resjudicata]

@rickyrajesh "For the group of active traders (excluding outliers), the average loss of a loss maker was over 15 times the average profit by a profit maker during FY22."

For a zero sum game, total profit=total loss. Since number of loss makers>profit makers, should not this be the other way round?

 

[rickyrajesh]

@resjudicata That would be true if we look at the data of all participants. But here only non-outlier individual traders are being considered. Based on that we can infer that institutional traders and (some outlier individuals) are profiting from majority of individual traders.

 

[resjudicata]

@rickyrajesh So that's another conclusion from this study.. institutions win big, whereas individuals rarely do

 

[zashmaster]

@resjudicata Yes. If you see the snippets of the full data, this comes out starkly.

 

[swanny]

@resjudicata its not a zero sum game. yeah a person does lose while another one gains. but this is not a zero sum game. you cant put the total loss in one side and total profit in amother side and compare them. even if you do, the profit makers even though less in number, would have made so much compared to the amount of money the other side has lost.

its not a zero sum game. its a very complicatedly constructed machine that only few understands and only few try to gain from it from a very tiny portion of control they have left over it.

 

[evangeline002]

@swanny Day trading is absolutely a zero-sum game, regardless of the money made. When trading ends, total profits - total losses will always be zero (sans transaction costs), unless there's some hidden accounting fraud knowingly done by an exchange.

 

[swanny]

@evangeline002 for you to gain a 1000 it does not necessarily mean another person has to lose that 1000. it only needs someone else to create a 1000.

 

[yallow]

@resjudicata Skimmed the report so it might have been mentioned but I guess this is only for the buy side (i.e. does not include sellers/writers of F&O).

 

[carletteblasi]

@resjudicata It is not a standard distribution. Keep in mind the negative skew and kurtosis. Averages will distort representation however the total loss will equal total profits for the whole population. This is just an analysis on a sample.

 

[noita]

@rickyrajesh I think the definition of active traders is too broad here, it will include someone who just opens Zerodha once a month only to buy a fixed amount of NIFTYBEES units.

 

[resjudicata]

@noita True. I trade once in a blue moon, mostly when some major event happens and I am in a mood of gambling. I would be considered active trader by above definition.

 

[amyf90]

@rickyrajesh From last 3-4 years my dad has been making a loss of 2-3 lakhs every year in F & O trading. He doesn't have much knowledge about the market, I don't know on what basis he was trading. We tried to stop trading in f&o but all in vain he want stop. I feel like f & o trading is addictive. Every time while filing ITR we get to know about the loss incurred in a year. It's his money so we don't have much say in how he spends. But this is reality many retail traders like him lose money when they trade without much knowledge. It also affects their primary source of earning bcz they are always glued to screens and wasting their time and energy in market and making losses.

 

[travisbrainerd]

@amyf90 Am I correct in my understanding that losses also are taxed? (Something like absolute value of premium or something like that)?

 

[multiarms]

@rickyrajesh Data always show that most individuals lose money day trading, not just in India but worldwide. People do not understand the risks and the gamification of it makes them underestimate them or fall into gambling tendencies. This is especially harmful for young people getting into trading because fundamentals are ignored and its all just stonk go up or stonk go down.

India's retail participation is still minuscule but I see a new wave of investors (esp after the crypto hype) where they think its normal to make 100% profit daily without understanding the asymetical nature of the bet (you only need one bad day to wipe out all gains).

 

[cookie34ss6]

@rickyrajesh Finally an Indian statistics for course sellers to use /s

The first thing I wanted to read was the methodology and data collection. It says:

For thestudy, individual client-wise (which includes HUF and NRIs but excludes Proprietary traders, institutions, partnership firms etc.) data of realized net trading profit /loss incurred during FY19 and FY22 has been collected from the top 10 brokers (based onindividual traders’turnover for the period FY22) in equity F&O segment of NSE. These top 10 brokers account for nearly 50 percent and 67 percent of the individual client level turnover in NSE equity F&Osegment during FY19 and FY22, respectively

Period: FY2018-19 and FY2021-22

The periodsof study havebeen suitably selected keeping in view the influx of individual investors in the last three years, so as to comparatively analyze thetrends before and after Covid-19 outbreak.

FY19 and FY22, not from FY19 to FY22. It seems whatever happened in FY20 and FY21 didn't support author's hypothesis so they have excluded the data. Though they say they have done to a comparative trend analysis - it would've been interesting to see what happened in the COVID years. It seems like retail traders made money and that brought in even more retail traders (growth from 7 lakh to 45 lakhs) But by excluding the data this looks like cherrypicking and a shame really.

 

[zashmaster]

@cookie34ss6 I am not sure why something is a shame. Particularly FY21-22 is an interesting year since the top was reached just after the mid of the year. One biggest selling point used by all those courses is that traders can make money in any kind or market.

 

[cookie34ss6]

@zashmaster

I am not sure why something is a shame.

I think I explained it well in my statement but here goes again - Because of the data cherry picking. Instead of letting data tell the story and presenting the trend or showing that top/bull run lead to wins etc the authors have chosen to pick years to push a narrative. This lowers the authencity of report and show SEBI reports cannot be trusted as they might be massaging the data or cherrypicking to push a narrative.

 

[noita]

@rickyrajesh It would be better if SEBI just releases some anonymized data and let us draw our own conclusions from it, the methodology in this report is not very good.

 

[stephend]

@rickyrajesh Brother is coping hard after seeing huge F&O profits of people shorting Adani today.