Zerodha co-founder Nithin Kamath on Tuesday said "biggest reason active traders lose money is overtrading" and said a new change will come in the order form on the low-cost brokerage to help keep traders under check. "Traders forget that costs like STT, stamp duty, etc. are charged as a % of every trade & compound quickly. You'll now see the total cost of a trade on the order form," said Kamath in a Twitter thread.
He said this feature should have been there even without a Sebi circular.
"Ideally, we should have introduced this feature even before the SEBI circular requiring all trading platforms to display costs on the order form. This was a miss from our side," said Kamath.
He also suggested a trading strategy for retail investors to curb their inflating trading costs.
"Controlling your impulse to trade is like a person with a sweet tooth going on a sugar-free diet— assume that you'll do something stupid. The goal should be to limit the damage. With diet, it is to have fruits & sugar-free alternatives; with trading, it is bet sizing. A simple bet sizing strategy is to trade with as little quantity as possible most of the time. Increase it only when you have conviction and are trading well. This way, even if overtrading, the risk, and the trading & impact costs don't compound quickly," tweeted Kamath.
The Zerodha boss' tweets come days after a Sebi report warned that 9 out of 10 individual F&O traders lost money in FY22.
As many as 89 per cent of the individual traders lost their money in the F&O segment in FY22, they witnessed an average loss of Rs 1.1 lakh during the year, according to market regulator Securities and Exchange Board of India.
Over and above the net trading losses incurred, loss makers expended an additional 28 per cent of net trading losses as transaction costs in FY22. “Even those making net trading profits, incurred between 15 per cent-50 per cent such profits as transaction cost. However, the percentage was significantly low at 6 per cent for non-active traders who made a profit,” Sebi said.
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