Intraday trading participation quadrupled, especially from Tier-3 cities, especially among younger ones. Around 81 per cent of traders under 20 years old ended up experiencing losses".
Securities and Exchanges Board of India released a study showing a staggering 71 per cent of individual intraday traders incurred losses in the financial year 2022-23. The study that covered 86 per cent of individual traders sheds light on the huge risks involved in intraday trading in the equity cash segment. In the elite group of traders with annual trade turnover over Rs 1 crore, the average annual loss for loss-makers was Rs. 74,575.
The study comes on the heels of the 2024 budget almost doubling the securities transaction tax (STT) on Futures & Options (F&O) of securities to 0.02 per cent and 0.1 per cent.
The number of participants engaging in intraday trading experienced a staggering fourfold increase within four years, especially after the pandemic. Notably, the total number of individuals trading intraday grew from 14.9 lakh in FY19 to 78.3 lakh in FY22 and 68.9 lakh in FY23. Now one in every three individuals who trade in the equity cash segment trades intraday. Further, the participation of individual traders from Tier-3 cities increased tenfold in FY23 compared to FY19.
The study found that the percentage of loss-makers among traders below 30 years old was notably higher, at 76 per cent, compared to other age groups. Those under 20 years of age had the highest proportion of loss-makers (81 per cent). Despite this, their participation surged to 48 per cent in fiscal year (FY) 2023 from 18 per cent in FY 2019. The share of 'very small' traders, with an annual intraday turnover of less than Rs. 50,000, rose to 56 per cent during this period.
Experience in trading also didn't make much difference. Even after 3 years of experience, 54 per cent of traders were loss-makers, but this is a lower percentage compared to the overall loss-makers (71 per cent).
The trade size also didn't matter when it came to loss-making. Around 76 per cent of traders with an annual intraday turnover of more than Rs. 1 crore were loss-makers. In this elite group of traders, the average profit made by profit-makers was Rs. 89,172, while the average loss for loss-makers was Rs. 74,575.
The proportion of loss-makers is at 80 per cent for traders with frequent trading activity, particularly those conducting more than 500 trades a year. On average, loss-makers carried out more trades than profit-makers.
Loss-making traders spent an additional 57 per cent of their trading losses as trading costs. These include brokerage, exchange fee, SEBI fee, stamp duty, and GST. Even though the cost of trading as a percentage of turnover seems small, it can add up to a significant amount as the number of trades increases.
The distribution of turnover of individual traders is highly skewed. The top 5.6 per cent of traders contribute to over 90 per cent of the turnover. They are high-volume traders engaging in daily intraday turnover exceeding Rs 1 crore. On the other side, the bottom 78 per cent of traders, with intraday turnover less than Rs 5 lakh, make up only less than 1 per cent of the total intraday turnover for all individual traders.