45% of Newbie traders claim that “not knowing enough” is the primary reason for losses incurred in Futures & Options trading – Sharekhan’s survey reveals

Bengaluru, December 28, 2023: Sharekhan, one of India’s most trusted full-service online brokerage houses, unearthed a worrying trend in the findings of its ‘Serious About The Markets’ pan-India study, conducted in conjuncture with Kantar. The study found that 32% of Newbie Futures & Options traders claim they couldn’t judge the market movement & 13% claiming that lack of enough trading knowledge are the primary reasons for losses incurred, leading to an aggregate of 45% of them hinting “not knowing enough” is at play. Additionally, more than half, i.e. 55% of traders buy more to average out their losses in trades.

This report comes in the wake of the SEBI’s findings that a high percentage of investors are losing money in F&O trading. The report revealed 9 out of 10 individual traders in equity F&O segment incurred an average loss of ₹ 1.1 lakh during FY 2022. Most of them were operating in the Options segment. Taking note of this SEBI study Sharekhan wanted to understand how seriously new comers were approaching the F&O segment and the challenges being faced by them, and therefore it commissioned this pan-India survey called ‘Serious About The Markets’.

Jean-Christophe Gougeon, Chief Marketing Officer, Sharekhan, comments: “While we were happy to find out that new comers are quite aware of the risks and their own lack of knowledge we are concerned about the survey’s findings on the approaches taken to decide where to trade in F&O and the lack of required discipline when it comes to trading. We sincerely urge everyone to not take a casual or short-cut approach and to do either take help from SEBI registered professionals, full-service brokers or do their own proper research before they enter the F&O segment. Our new campaign is in this direction to help new comers be more aware about the casual approaches that one should avoid”

The survey, methodically conducted by Kantar pan-India, spanned a diverse group of participants across various demographics and geographies, lending credibility and depth to the findings.

Key Findings from Sharekhan’s Serious About The Markets survey:

Misplaced Expectations: 40% of newbie traders claim that their main reason for entering the Futures & Options segment is due to the chance of making quick and easy money and 48% of them believe that 30% to 50% of people are consistently making ‘good returns’ from the F&O segment

Dependence on Non-Professional Advice: A significant portion of traders (53%) are spending their trading capital most often basis inputs from family & friends and mentions on social media/ websites/ youtube videos which can lead to ill-informed trading decisions and increased risk.

Lack of Applying Strategies: A startling 35% of traders do not use or apply any specific trading strategy, which can often lead to risky trading decisions. This includes strategies such as Straddle and Strangle being known but found difficult to implement. Only 5% of traders claim they are using Algo strategies provided by specialized companies/ websites

Inadequate Use of Stop-Loss: Only 42% of traders claim to use Stop-Loss in half of their trades whereas 16% claim they use it very rarely, indicating a key component in managing trading risks effectively is not being used enough

In light of the findings from this ‘Serious About The Markets’ survey, Sharekhan has partnered with Stocktwits to put out an educational video series with experts called “Let’s get serious”. This series will also be complemented with infographics that take parts of the survey and provide the right guidance via SEBI registered professionals. Stocktwits is the largest social network for investors and traders whose mission is power the global conversation for investors & traders of all levels in order to connect, learn, profit and have fun

Gaurav Dua, Head of Capital Market Strategy at Sharekhan, adds: “The recent study’s findings serve as a crucial wake-up call for traders, particularly those new to the F&O market. It starkly highlights the urgent need for robust advisory services and comprehensive education in the trading community. At Sharekhan, we recognize the critical nature of this gap and are deeply committed to bridging it. Our focus is on providing our clients with highly informed and strategic research recommendations, tailored to various risk profiles. We aim to empower our clients with the knowledge and tools necessary to navigate the complexities of the F&O market more effectively and confidently. Our goal is to transform their trading journey into a more successful and sustainable one, underpinned by solid strategies and sound decision-making.”

Anand Parameswaran, Executive Director & Head of BFSI Practice at Kantar, adds This study done in partnership with Sharekhan has uncovered many interesting but concerning trading practices of newbie traders in the Futures & Options segment. It is important for investors to have a more disciplined approach and incorporate more diligence & rigor in their research before investing their hard-earned money.

Initiatives to educate & train them on the fundamentals of investing in Futures & Options market are quite likely to be beneficial. The newbie trader community need to be better equipped for risk management and can thus take informed & well researched investing decisions. The Futures & Options market which could see increased interest and wider participation in the future.

In light of these findings, Sharekhan strongly encourages F&O traders to seek professional advice and education. And to that extent Sharekhan’s investor education strategy goes beyond conventional marketing. The in-house Sharekhan Classroom modules and its subsidiary Sharekhan Education’s Power Money Webinar offer a range of learning modules, emphasizing the brand’s commitment to an informed approach for succeeding in the stock market. This initiative aims to improve trading outcomes and foster a more informed and strategic trading community.