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speed thrills but kills

don't rush with your investments

speed thrills but kills

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Recently, I came across one post on Twitter where Mr. Rakesh (name changed) has shown his frustration over share trading losses in the past one and a half years. I saw similar stories in the long thread. Initially, I thought either this was a one-off case, or the person had tried to gain likes and followers on Twitter on sympathetic ground. However, to my surprise, this is not a one-off case. It’s the story of millions. This is not a sign for a healthier society. Can we help ourselves and some of our fellow citizens save the hard earned money? I felt definitely we can do something about it. Please read the article and let me know what do you think. If you like this article, please share with others so that it can reach those people who are either already or potential victims.

90% of traders loose money on the streets

Trades in futures and options in the Indian stock market have grown at jet speed in the last decade. The number of option contracts has grown at 52.4% CAGR in the last ten years. The number of futures and option contracts traded in India reached 90.7 Billion in 2023 and has surpassed the United States each year for the previous five years. It appears that the young population in India, who are frustrated with slow-moving life, have found a new love for quick money-making through leveraged trading. Trading in futures and options is easier due to multiple factors like smaller lot sizes, less stringent margin requirements, easy credit, and zero brokerage apps.

Result – Trading volume in equity derivatives to cash ratio has ballooned to 422, for every 1 rupee worth of shares trading in cash, People are betting on 422 rupees of derivatives. If the stock loses 25 paise in value, the derivative trader is likely to lose 100 rupees. In the most advanced market, the US, the derivative-to-cash equity ratio is just 9. In India, it seems there are no limits to derivative trading. This explosion in derivative trading has resulted in 90% of the traders ending on the losing side. “Speed Thrills But Kills.”

tips providers are disguised as financial advisors

Another important factor that contributed to this insane growth is, easy access to trading with hourly and smaller time frame technical charts!! The so-called market experts, who may not be successful in their own accounts, give sophisticated lectures on intra-day trading, swing trading, and whatnot!! 

As an example, Mohd Nasiruddin Ansari, a self-proclaimed stock market expert, has offered training courses and declared on various social media platforms like Facebook and Twitter, that he will pay back Rs 2 million (approx $ 24000) if the trainee doesn’t make money from the stock market within three months after the training. The person flaunted a Mercedes car and used to attend extravaganza functions.  Aspirational people fell into the trap. He collected millions as fees to offer courses on stock trading that would make others millionaires. But in reality, Mr Ansari has made close to Rs 3 Cr ($ 350,000) of trading losses in his personal brokerage account. What a tragedy!! A person who lost Rs 3 Cr by trading himself is selling dreams to millions. He is not alone. Numerous stock market experts sell dreams on social media platforms like YouTube, Twitter, Facebook, and Linkedin.

Because of many such market experts’ get-rich-quick schemes, a retail trader now wants her trade to be profitable in less than pizza delivery time. On average, a retail trader in India holds onto an option contract in less than just 30 minutes. People expect to execute their profitable trades at high speed and in an automated way– “Enter the trade – Go for lunch – Relax some time – Check the trading app – See green color – Hit the exit button – Boom!! Account credited message received”. It should give a thrilling experience. 

If you have already entered this mentality, then STOP here. None of the books in finance I have read so far has any place for such quick money-making ideas. The quick money-making idea providers cannot be termed Financial Advisors. They are stock market tips providers. Here is a lesson for you. If anyone tries to sell you a get-quick-rich scheme, question back, “If you are an expert in stock trading, then do it yourself. You can become a millionaire or billionaire. Why are you disclosing your ideas to me?” Believe me, 99% of this type of market experts will switch off.

say NO to peer pressure

Another reason why people enter into stock trading is peer pressure. Many ask me if my ‘A’ or ‘B’ or ‘C’ friend has become a millionaire by trading on X, Y, and Z stocks. Why not me?  He is less talented than me. If my friend can make money, then why not me?

Sometimes, You can. But how many people become millionaires in such a way? Data says 9 out of 10 traders lose money in futures and options. So, if you want to be the trader who will make money, nine others are losing. There are big institutional players like fund managers who are highly experienced, equipped with the latest technologies and information networks, and focused on trading throughout the day. How often can you beat them and make money? Chance is minuscule.

70% of traders leave trading within one year, and 90% of traders like Mr Rakesh leave within three years. Millions of new traders enter the market, and the cycle continues. It’s no different from a traditional Ponzi scheme.

If you are into such type of peer pressure, then the best way to handle such a situation is to give yourself enough time to think through it. Ask yourself the following questions –

  • Will your friend come to rescue you from any potential trouble in share trading? If not, switch off the thoughts that your friend has become a millionaire in stock trading. Trading in derivatives is a zero-sum game. One person’s gain is a loss for the other. If your friend has gained, somebody else has lost. You should not be that losing person.
  • Do you have the time to dedicate to trading? As a thumb rule, you need to put in at least 10,000 hours to be successful in any profession. If you spend 2 hours from your daily schedule, then it will take 15 years to master this skill. You have enough patience to make good money after 15 years.

If you are uncomfortable with the above two points, Say NO to peer pressure. If you fail to resist the peer pressure, people like Mohd. Ansari will successfully sell dreams to become a master in stock trading.

FOMO - Fear of missing out

Another reason to jump into share trading is FOMO or the Fear of Missing Out. People think that if they don’t take a position in stocks for which they have received the tips and the stock makes a rally afterward, they will miss out on profit opportunities simply because of their inaction. After missing out on multiple such opportunities, even the most passive investor becomes prone to active trading. If such situations arise in life, keep a small amount based on your risk appetite for trading. It’s perfectly alright to feel the thrill in the share market. But always keep in mind not to go beyond the allocated amount. If you make any profit, add that to your trading account capital. If you make a loss, do not add any more money to your trading account. If you are out of money, close the trading account and never trade again. Stock/derivative trading is not for you. You are not alone. Remember, 90% of the stock traders lose money.

think of a traffic inspector - keep the red signal ready

STOP SIGNAL

The best way to be in the stock market is to think of a Traffic Inspector. The inspector always remains alert and does not hesitate to show the red signal when a driver violates the traffic rules. You should become the guardian of your investment and should not hesitate to say NO if you feel that you are drifting away from the path of investing path. Remember – “Speed Thrills, But Kills”.

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If you have any suggestions on the article “Speed Thrills But Kills – Don’t Rush With Your Investments”, feel free to drop them at contact@lifespectrum360.com. If you are an expert in finance domain and want to write guest posts for us, please reach out to us at lifespectrum360@gmail.com.

Data sources: Futures Industry Association, Securities and Exchange Board of India (SEBI), Bloomberg

Disclaimer: This article is the personal opinion of the author. The information in the article is generic and not tailored to specific situations of individuals. Therefore, the article is for informational purposes only and not intended to be personal financial advice or any kind of recommendation. Readers should understand that there is an inherent risk involved with financial decisions and should consult financial advisors for help with any investment advice. Neither the author nor Lifespectrum360.com is liable for the decisions readers make.

Picture of Birendra Sahu

Birendra Sahu

Birendra is a seasoned finance professional with over two decades of expertise in the financial industry. He has experience in several multinational banks in both operations and technology. His areas of expertise are Investment Banking, Asset and Wealth Management, Treasury and Risk Management.

FAQ

This phrase underscores the danger of making impulsive investment decisions without thorough research and consideration. While the excitement of quick gains may be enticing, it often leads to significant financial losses if not approached with caution.

Rushing into investments can lead to decisions based on emotions rather than logic and analysis. This increases the likelihood of making poor choices, overlooking risks, and suffering financial setbacks.

Signs of rushing include making decisions based on tips or rumors, frequent trading without a clear strategy, and feeling pressured to act quickly due to fear of missing out (FOMO). Recognizing these behaviors can help you slow down and make more thoughtful investment choices.

4 thoughts on “Speed Thrills But Kills – Don’t Rush With Your Investments”

  1. Selva

    Its a well written article to provide insight about trading. I agree with the point on a “cautionary approach” by limiting the percentage of money one should invest.

    Reply
  2. Hariharan

    Absolutely 💯 Birendra. Another important perspective in this subject of trading is that a max of every four trades out of 10 are likely to make some profits. So.. there is one fundamental question or criterion or goal an investor must.. absolutely must freeze first..his or her time horizon.. the next step is to have well defined stop loss and take profit levels and…. stick to them…!!

    Reply
    1. lifespectrum360.com

      Yes, absolutely Sir. The strict stop loss and take profit criteria will help. For that, a definite behavioral change is needed. I sincerely hope that this article will reach those needy people who are trapped in the vicious cycle of share trading!!

      Reply

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