2 simple reasons why retail investors lose money from short-term trading in share market

2 simple reasons why retail investors lose money from short-term trading in share market

If you are a beginner in share market and want to make money from short-term trading then please take some time and read the whole article and then decide what you should do. 

Trading is meant for institutional investors and hedge funds. They can only make money. Being a retail investor, you can make money from one, two, or three successful trade but one unsuccessful trade will ruin your entire gain and also your happiness. These two simple reasons show you why retail investors can’t make money in trade with their own brain

  1. You don’t have enough expertise and time – It requires huge knowledge, experience, time, and discipline to earn consistently from trading. You don’t have that huge 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 full-time job and apply for the job of a professional trader. There is a real shortage of quality professional traders in the industry. But if you engage in some other full-time job and still want to trade with your own brain then you are one step closer to losing money.

2. Brokerage and taxes while calculating profit and loss – Suppose you purchase a stock at RS.100 and after few days you sell it at RS.110. Apparently, it seems you earned RS.10. However, the story is different. For every transaction (buying/selling) you need to pay brokerages, Security Transactions Tax (STT), Goods and Service Tax on your brokerage and last but not the least 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 but we should. Let’s calculate net profit and loss in two different cases.

Particulars1st Transaction2nd transaction
Buy Rate100100
Sell Rate11090
Gross profit/Loss10-10
Brokerage+STT+ GST+ Exchange Charge( Both on buy and sell case)1+1=21+1=2
Short Term Capital Gain Tax(15% on profit)1.50
Net profit/Loss(10-2-1.5)=6.5(-10-2)=-12
calculation Profit & loss

The above table shows a surprising result. Gross profit of RS.10 turns into net profit of only RS.6.5 where as gross loss of RS.10 turns into net loss of RS.12. So, 10% of gross profit is originally 6.5% net profit where as 10% of gross loss is originally 12% of net loss.

This is one of the most important reasons of losing money in trading. The odds are against you. The system is designed in such a way that it is next to impossible to make money constantly. Brokers, Stock Exchange and Government- only they can earn consistently from trading. Every time you trade you need to pay all these fees.

I hope now the reasons is clear why retail investor lose money in trading.

“Your broker, stock exchange and government can only become rich from short term trading.”

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