Sure shot way to lose money in stock market
From the earlier stated example, you are now aware of the certain methods to lose money. Summarizing the above topic stands as “Retails investors are bound to lose money from trading in stock market”. Here “trading” refers to intraday, Futures and Options and all other activities where you purchase stocks to sell and generate a profit within 1-15 days. “Retail investors” refers to the individuals engaged in some other full-time profession and investing a portion of their savings into the stock market.
Why trading is a sure-shot way to lose money for retail investors?
Trading is meant for institutional investors and hedge funds. They can only make money. Being retail investors, you can make money from one, two or three successful trade but a single unsuccessful trade will erase your entire gain. Following are the reasons why trading is a sure-shot way to lose money for retail investors -
You don't have enough expertise and time - It requires huge knowledge, experience, time and discipline to earn consistently from trading. Admit it; you don't have that amount of knowledge, experience, and discipline. Most importantly retail investors can't dedicate a huge amount of time as they are already engaged in some other full-time profession. Being a retail investor, if you believe that you are wise enough for trading, then you should immediately leave your job and apply for a professional trader. There is a real shortage of professional quality traders in the industry!
Simply putting, if you engage in some other full-time job and still want to trade with your own brain then you a one-step closer to lose money.
Consider brokerage and taxes while calculating profit and loss:
Suppose you purchase a stock at 3100 and after few days you sell it at 110. Apparently, it seems you earned *10. However the story is different.
For every transaction (buy or sell) you need to pay brokerage, Security Transaction Tax (STT), Service Tax and exchange charge. The list does not end here. You also need to pay short term capital gain tax (15% of profit in India) to the government. Normally we don't consider these fees while calculating profit or loss. Let's calculate net profit and loss in two different cases. In the first transaction, consider buy rate as 100 and sell rate as 110; i.e. gross gain of 10. In the second one, purchase rate as 100 and sell rate as 590; i.e. gross loss of 310. To simplify the calculation, I am considering 1% on total turnover as brokerage+ STT+ service tax+ exchange charge. So, you need to pay 1 on every 100 both for your buying and selling transactions.
This is one of the most important reasons for losing money in trading. The odds are against you. The system is designed in such a manner that it is next to impossible to make money consistently. Brokers, stock exchange and government - they can only earn consistently from trading. Every time you trade you need to pay all of them. They don't bother whether you are gaining or losing. I hope now the reason is clear why your broker, media and several websites always encourage you to trade frequently. They all want to earn money for themselves, not for you. Do you still want to make them richer?
“Your broker, stock exchange and governmen
only become rich from short term trading.
