SEBI's recent study brings out the trends and outcomes of intraday trading in the equity cash segment by individual traders from FY19 to FY23.
The study reveals a sharp increase in individual participation, particularly from younger traders and those from Tier-II and Tier-III cities, with a concerning trend of substantial losses.
The study also examines the demographic breakdown, trading patterns, and financial outcomes for individual traders.
Findings
- The number of individual traders engaged in intraday trading surged from 15 lakh in FY19 to 69 lakh in FY23, marking a 4.6-fold increase.
- 48% of these traders were aged below 30 years in FY23, up from 18% in FY19.
- A significant increase was observed among "Very Small" traders (annual turnover < ?50,000), whose share rose from 27% in FY19 to 56% in FY23.
- 71% of intraday traders incurred net losses in FY23, up from 65% in FY19.
- The percentage of loss-makers was highest among very frequent traders (those executing more than 500 trades annually), where 80% faced losses.
- Younger traders (under 30) showed a higher propensity for losses, with 76% incurring losses in FY23.
- Even with three years of trading experience, 54% of traders remained loss-makers in FY23.
- Loss-makers, on average, executed more trades than profit-makers, indicating that frequent trading did not lead to profitability for most participants.
- Even after three years of experience, 54% of traders continued to be loss-makers in FY23, highlighting the persistence of losses despite increased trading experience.
Skewed Distribution of Turnover
- The distribution of trading turnover was heavily skewed, with 78% of traders (those with turnover under ?5 lakh) contributing less than 1% of total turnover.
- In contrast, the top 6% of traders (annual turnover > ?1 crore) contributed over 90% of the total intraday turnover.
- Traders with annual turnover over ?1 crore had an average loss of ?34,977 in FY23, with 76% of these traders incurring losses.
- For traders with high turnover and high frequency (more than 500 trades per year), the average loss reached ?75,443 in FY23.
- Loss-making traders saw their losses increase by 57% due to trading costs, including brokerage, exchange fees, and taxes.
- Profit-makers spent 19% of their trading profits on transaction costs.
- Traders executing more than 500 trades incurred 72% in trading costs over and above their losses in FY23.
- Male traders represented 84% of intraday participants in FY23, with 72% incurring losses. Female traders had a lower proportion of loss-makers (66%).
- Single traders faced higher losses than married traders, with 75% of single traders incurring losses.
- Traders from Tier-I cities had a lower proportion of loss-makers compared to Tier-II and Tier-III cities.
Decline in Trade Size and Number of Trades
- The average trade size fell to ?35,333 in FY23 from ?76,205 in FY19, largely due to the influx of small traders post-COVID.
- The number of trades per individual trader also declined, with loss-makers generally executing more trades than profit-makers.
Take Home
- The SEBI's study highlights significant risks for individual traders participating in intraday trading in the equity cash segment.
- The overwhelming majority of these traders consistently incur losses, with trading costs further exacerbating their financial outcomes.
- Younger, less experienced traders and those from smaller cities appear to be particularly vulnerable to losses.
- The findings clearly emphasize the need for enhanced investor education and risk awareness in the intraday trading market.
