If one is an enabler, engaged in supporting some other primary activity,
then there’s a fundamental upper-limit
to how much value one can claim to add by enabling the primary activity. (i.e the value being added by the other activity)
Don’t put the cart before the horse.
Any retail trader feeling smug that they are better than the “average joe”,
Where will they be once the supply of “foolish money” dries up?
Wait? Is THAT the concern with increasing regulations?
that the constant supply of marks/schmucks will stop?
I do agree with this. But blaming trading for that, dunno about that.
I think taxation rules are probably most to blame among other things.
Capital gains for one, is most lightly taxed and allowed to compound without yearly friction that a salaried guy will have to deal with.
One can argue that salary guy can also invest, but proportion of income invested will be much lower vs ultra rich.
Warren Buffet himself said so, and that’s when i realized it.
I read an article sometime back where they said that this lack of friction to CG mathematically lead to concentration of income.
I am sure there are many other things and if one wants yes blame trading.
There is no way to know for sure, but i think this may not necessarily be true.
Just a small sample but - intraday stock traders had a terrible time in general for few years from 2021 when the masses started buying like there is no tomorrow.
Many things did not work as well or stopped working.
Perhaps they added noise, dunno.
Who decides that ? Different people will have different views on what is adding value and to what extent.
Considering how people behave, governments behave, i think this applies very loosely.
Really ? Does this actually happen anywhere ? Communism perhaps, but that doesn’t seem to work.
Best seem to the socialist democracies in Scandinavian countries, dunno.
But why this comes up in trading only. Then we can apply this everywhere. Perhaps people going to IIT should be selected by lottery system to not discriminate against people who did not / could not compete?
Perhaps for jobs too ?
Anyway, this seems very out of topic.
I would call it a mix of exploitation by some ( people selling things while claiming easy money, including brokers ) and arrogance by the common to think that they will just come in and make money like there is no tomorrow. They dont even wait to test things. Whose fault is that? And once people lose, ofc blame anyone who makes money.
I also was foolish in my early years to a small extent - in investing - but i take most of the blame for that. All these research reports by different institutions did not help either if they don’t handhold you as you are gonna make rookie mistakes.
So i would say some kind of low level education, practical education, over money matters is necessary and has been missed. And we need stick to go after the exploiters.
But blaming trading and traders for that seems unreasonable. Just look at the SEBI prompt you get everyday on login to broker. Most of the money people lose in active trading goes to the government because of excessive taxation. If taxes were lower, fewer people would probably lose or lose less.
Also, as i said - same shit happens in investing, but no one seems to notice in a bull market.
Anyway, i don’t have a major stake in fno trading, and probably wont in near future. So perhaps i am unbiased enough for this.
Also - I strongly think that there must be initial breaks for people who start trading with leverage. But they also must be allowed freedom to fail at some point. If an exam helps, so be it.
Average Joe can make 1% or 2% , they don’t lose everything and can call it zero sum game and think of it like some gambling machine and hit 2 buttons Buy and Sell and make quick money.
The issue here is people don’t approach it as bussiness. Secondly oversimplification plays insane mind games. When you click buy button or sell button on the backend you are making a contract with other side. Your broker does that based on POA you gave in the market with other side. And you have to honor it. All of it oversimplified , however after enough education people get disassociated altogether and replace it gambling machines in their heads
I don’t think we should put regulations or judge their capacity. Rather the issue is unlike real estate where you have documents or something infront, you have nothing.
It’s best people first go to a court , swear an oath, let it be read thoroughly before opening f&O segment to let them know this is serious bussiness. Right now opening demat has been so paperless and easy , everyone gotten thinking around F &O is gambling station. I know people don’t read disclaimer at all, seriously who reads. You wouldn’t find drunkard reading “drinking is injurious to health”.
Second regulation, I would suggest is if someone has lost of money , maybe make them go to court , swear an oath that they lost money after initial stage and they are aware they are again trading. Have other people have checks on you. Not ban people outright but it is to make people psychologically aware, because most of time when people lose 20 to 30% of capital, if they stopped that should have saved them. The issue is they press on. Or maybe have a regulation to direct them to take break but not outright ban or create barrier.
Thirdly I would say one thing though, every profitable trader even including investor once lost money only thing is lose less. Maybe tell them to have a small account and ask them to reach 9%. Even if they lose money it’s good because they need to get used to overcoming emotions such as revenge trading , chasing losses, over leveraging, gambling etc. Psychology from demoing to trading real money is way different, it is same even for investing.
This should help. Not ban or creat barrier entry but let them be aware of themselves of what they are doing stock market.
Setup, really? It’s their lack of doing hard things. They want easy money. Discipline is hard, patience is hard, consistency is hard, being satisfied with less is hard, changing psychology is hard. They want easy money. Who is setting up them for failure? Their inner selves.
Failure is everywhere, in every business. Shifting blame to others, rather than looking within ourselves is the real problem. Once a wise man said, " Only you are responsible for your failures, blaming others will only decrease chances of success in future."
Certainly, it is not their lack of time or money too. If you don’t want to put more hours of hard work every day, forget sucess. Trading can be done with less money. It is not like investing that requires a lot of money to earn something substantial.
Surely not,
Regulating everything is the real problem that destroys years of hard work.
They increased margin requirement in commodity by ten folds (once I was an ace trader in Crude Oil after years of hard work).
They stopped currency trading for retailers.
They removed intraday margin benefits in equity.
They removed option selling margin benefits.
They banned 0DTE.
They stopped BankNifty weekly expiry ( I only traded BankNifty for years after moving from Crude Oil).
They increased STT, now we are giving too much of stupid charges.
They are moving expiries from one day to another every month, that requires constant changes and efforts in our system and strategy and that is not easy.
Now, they came again and tell to introduce some new rules again. It may not be a problem for an investor but a full time trader really has problem with these over regulations.
Also, I am an option buyer, I don’t trade against foolish money, I trade against smart money (large funds and institutions).
Our real concern is not drying foolish money or diminishing schmucks. I can compete with smart money. Our real concern is destruction of years of hard work in an instant by over regulation. They throw the baby out with the water.
(Note: The following comment contains what might initially appear as self-contradicting statements. However, they are so, as they are responding to 2 opposite views.
TL;DR: Irrespective of what one’s opinion of the other players/actors (eg. the regulator) is, pick a dominant strategy and stick to it.)
Of course. Not at all blaming trading for it.
But, the increasing retail participation left unchecked is going to be another leaky bucket that drains the populace and enriches “the few”.
One we can logically expect to be the next new dominant “leaky bucket” as other prevalent “leaky buckets” are slowly being plugged-in.
To clarify this further,
the “dumb money” is not just the 9/10 folks that the daily statutory warning reminds us of.
I genuinely belive that both you and me, we are “dumb money” too.
More sophisticated, but nevertheless “dumb money” still the same.
So what’s the “winning move” ? Is there even one?..
Sure. but no matter what, by definition,
a secondary activity cannot be valued more than the value of the underlying “primary”, right? The activities of trading in derivatives of a commodity cannot be valued more than the production-distribution-consumption of the underlying commodity itself.
IMHO, the financial sector has an overvalued opinion of their contribution.
And that is ripe for a “correction”.
especially due to an over-supply,
But mostly due to a world where the demand for financialization is reducing.
Note: This isn’t a fact. Just an opinion based on what we observing around us.
I expect all this is likely to happen in due time.
However, it seems that the decision-makers are considering the current status as “crisis-level” critical, and hence are taking relatively drastic measures, even if that results in major costs/risks including sudden shocks to a complex system, and a loss of trust in the system.
This reeks of entitlement.
Why build castles in the air. That too on someone else’s platforms
(especially when one;s activity is not the primary value generation in the chain, remember?).
Why persist for the old and familiar. Why not adapt and move on?
…and if doing so, look for non-zero-sum pursuits, especially in some new “blue ocean”.
Hard work? maybe. Smartly directed? Not so (in hindsight).
If you are a trader reading this,
hopefully you do not fall prey to the sunk cost fallacy,
end-up throwing good money after bad,
and lose out of the actual opportunities.
Looking around,. obviously not, right?
You cannot lobby the regulator. Smart money can.
You cannot create new/custom financial instruments. Smart money can.
Once you start to reliably carve out an edge, the rules of the game are changed.
Once you learnt to count-cards, you are no longer welcome to play at the casino.
Isn’t this a natural symptom of -
a. Not being the primary in a value-chain.
b. Playing someone else’s game in their backyard (the Smart Money’s).
One doesn’t have to expect it, but it helps to be prepared to be commoditised.
The “baby” signed-up to play in this.
If one is significantly affected by this,
maybe think of oneself as the “dumb money” who was caught unaware
due a lack of awareness on what one was signing-up for.
Of source, if you are reading this here,
you are likely more sophisticated than the “dumb money” folks that are watching colorful graphs, hitting colorful buttons, and leaving colorful rage-filled comments on social-media.
But, maybe that just highlights that the “First they came for, and i did nothing. Then they came for…” scenario is already a couple of iterations underway, and it’s now your turn?
PS: Rather than keep arguing about why this feels unjust, has anyone considered what opportunities are opening-up? Any half-thoughts on that? Or does everyone here consider such opportunities opening-up to be zero-sum games and doesn’t make sense to discuss such stuff out in the open?
…or do you increasingly find yourselves in a strange game,
with the only winning move being…
It is the nature of these activities.
Investing by its nature is all about holding. How can you expect same activity/turnover as trading(derivative) in investing? If you are expecting, it is not investing anymore.
Trading by its nature is sale and purchase in smaller timeframe that’s why there is weekly and monthly expiries unlike stocks.
Comparing activity of trading and investing is foolish. It’s like comparing mangoes with brinjals.
According to your point of view, gov. should also ban IPL because turnover here is larger than international formats. Also, football leagues that are happening all over the world.
Also, we are being fooled by turnover of derivatives mentioned by exchanges or SEBI. They always show turnover in NOTIONAL terms not in actual premium terms.
You can buy an OTM contract of Nifty options for as little as 1000. Turnover will be 2000 after squaring off in premium terms, but in NOTIONAL terms it will be more than 30 lakhs. Yes, you heard that right.
As much as I know, everybody is affected by these regulations including large funds, HFTs, Prop. desks and institutions. There is no single active entity that is not affected.
So, according to you, these are dumb money?
I wasn’t. Not sure where you got that.
That was not the point.
The point of asking to evaluate the value-add of an activity
is so that one is well aware of it when one is overvalued
and plan to wean off of it as it won’t last long. (sure, make money of such inefficiencies, but remember that the very act of doing so drives the system to correct and eliminate the inefficiency)
Here’s a thought exercise -
What is the value (in rupee terms) created by the above OTM contract?
(value that woudl not exist without this contract)
For whom?
When?
Is this OTM contract the “primary” activity in its value-chain?
or does it rely on there being another “primary” activity?
one having a certain value, and this contract only helping retain/distribute that value?
( Not rhetorical questions. Genuinely curious how folks model / think of this.)
The ones who did not have a contingency plan for this scenario
and hence are going to be significantly impacted,
are by definition “dumb money”, yes.
(though typically the term is reserved for retail/indiviuals that are expected to be caught unawares and end-up on the losing side of “bets” in the market more often than not.)
Long-story short -
Certain activities are being disincentivized
as their value-add doesn’t exist in the current system (even if it previously did),
or might even be of negative-value considering the externalities involved.
Hedging for investors. But, here is the catch, an investor can’t hedge effectively if there is wide spreads in the option contracts.
i.e. Difference between bid and ask price is so wide that investor is not ready to hedge his position. Here comes traders who provide much needed liquidity to the market. Remember, if an investor is hedging his positions effectively in bearish market, there are lots of traders behind it , they are providing liquidity.
Certainly, it is not the primary activity. But think this also - many people buy/sell stocks for speculation purpose, not for investing. Infact real investment is only made when money is invested in IPOs, after that shares are only changing hands.
Real investment is for years, not for days or months. In my opinion, investment of less than 5 years is speculation.
Also, most of the people buy plots only for speculation purpose, they buy only to sell in the future. They don’t build anything on it. But, that area’s property prices are heavily influenced by those speculations.
Derivatives are secondary and stocks are primary but derivatives are much needed for price discovery. Sometimes secondary outperforms primary objectives. Some examples are -
Medicines - Initial purpose of many medicines was something else but they proved to be much more beneficial like Penicillin that revolutionized the whole world. Many more medicines are on the list that are widely available.
Internet - Internet was primarily developed for use of military, but now it is used by more than half of the world.
GPS - Same as Internet, primarily developed for military. Now used by whole world.
In these cases secondaries are much bigger than primaries.
I think reason we get edges is because large money seems to have an aggregate pattern of behavior and small money can be nimble enough to get in between. Or to give liquidity to people at periods of high demand. etc etc
Simple things but they work well. There are lots of uncertainties in trading and things can shift and we need to adapt - but - I am happy with it. I will just keep compounding and diversifying.
Its winning enough for me. Next up this year is overnight and investing type systems whenever i stop being lazy. Lets see …
Yeah. People have gone crazy with risk. Crypto/NFT/memecoins nonsense, sme chasing, smallcaps chasing. Tech has had huge growth too in US and that may have increased risk appetite. Fact that we bounced so quickly of covid also seems to have fed into this. Dunno.
Regulators in India have made some effort to reduce such things but people always find new things.
Anyway, i think active trading makes up most of the volumes generally if things are not distorted. STT is ~10x with overnight equity vs futures and even lower in options. This matters too, and has an extra impact on market makers. They will need their margins too and so impact cost increases further. Stock market in cash lacks depth, and this might be one contributing factor.
Govt itself directs people through its actions to some extent.
Hopefully you do not assume that all traders dont make money ?
Trading has not gone away.
What feels unjust ? Nothing has been changed so far, and if they bring in an exam, it should have no impact for long term traders beyond some inconvenience. Rest have come and gone, and we need to adapt. Only a few things affected me luckily. Another friend was affected more as he trades options but he is doing fine too.
What opportunity ? Start training people, na out of my interest/expertise.
If they go away, trading will go away and market gets inefficient again. It might be cyclical, its very much cyclical in short term as we get good phases and drawdowns in trading. That is why we have some uncertainty and we get paid for handling it.
I have systems that are working for almost 15 years, over all of my data basically, 5+ tested live. They change and shift and i adapted as needed but basic stuff works. One day it will end, so diversify and manage risk.
So would the proposed regulations curb some (a lot?) of the speculation?
Does it requie the volume of partitcipation in derivatives ?
Especially the kind that is speculating even in derivatives,
i.e. adding more noise
and increasing volatility
rather than proper price discovery?
The kind of examples described above,
do you see such value-add (or even the potential for)
in any of the activities being disincentivised by the proposed regulations?
I don’t see. If you do, please do share how…
In India, retailers are not permitted to trade in currency derivatives. Is there stability to enter the market as a retailer in currency derivatives? @ST_Trading
Yes, recent regulations are successful in curbing much of the speculation. I am not against the regulation, as well as most of the pro. traders. I am against over regulation.
Among 6 recent curbs introduced by the regulator, I am affected only by one change and that is the closing of BankNifty weekly. I am also okay with that as I have adapted to other indexes.
But, I think newbies are not ready for these changes. Even a small investor who is investing with less than 1 lakh rupees can’t hedge his/her position now because increased lot size demands more money to hedge. What about him? He/she may be clueless in recent bearish movement of the market. Now, you can say that they should have more money to invest. But, that will be an irony of your view where you were sympathetic towards people with less time and money.
Yes, even hedging requires volume of participation but surely not that kind of what we were seeing in recent past. But, every thing has its effects and some side-effects too. It is intellectually childish to think about having only good parts and eliminating all the side-effects. That is not possible. That is not how universe works.
Such a large retail participation was not so large in the secondary market that can cause volatility in the primary market or even in secondary market. A recent report showed that there was only 20-30% retail participation in options segment. Rest is funds, FPI, prop. desks, institutions, HFTs and colocated algos.
Do you really think that this 20-30% participation can cause volatility? How? Also, please explain how can any such volatility occured due to this retail participation in secondary market cause volatility in the primary market too? Do you think volatility of derivatives affect primary market?
Also, in my view, derivative market should be liquid and that works towards fair price discovery in the primary market.
Assume, an investor has a bullish bet in stocks, but now market is going down, now he/she wants to hedge his position. Now 2 scenarios can arise -
Highly Liquid Derivatives - He/she can hedge his position effectively without fearing more bearish movements, this stopped him from untimely squaring off his position. Crores of investor do the same thing and market/price is protected from going further down.
Less liquid/dried up Derivatives - He/she can’t hedge because gaps are too wide that defies the very purpose of hedging. Now, he is forced to take untimely SL. Think, if same thing is done by lakhs/crores of investors, this panic selling will crash market further and then starts ripple effect that can cause market to go down further.
This is the price discovery. It needs very effective and liquid derivative markets.
Nithin Kamath recently shared that only 1-2 crore Indians are active traders. That is only 1% of the population. It is not even comparable to other countries.
SEBI should come up with some plan to reduce activity of large entities. They are causing manipulation, they are hindering fair price discovery, they are causing manipulation, they have 70% of the turnover in derivatives.
Why to look at retailers, why to curb activities of 30%, why not the remaining 70%?
I also don’t see same value of derivatives in near future. But, that doesn’t mean it is useless and needs some heavy curbs or a complete ban. That will collapse the primary market.
Also, derivative segment is adding value to economy by generating STT, brokerages and jobs in brokerage houses and trading firms.
The need of the hour is to look beyond traditional approach of regulating.
Because the same old tropes keep coming-up again and again.
Also, i find it extremely frustrating to see some of the low-quality drive-by comments full of hyperbole and sarcasm that prevent a productive conversation. I am referring to what you rightly called out as “posting rubbish” earlier in this topic thread.
Exactly. So let us not kid ourselves that these activities are something to be cherished and preserved and encouraged forever and ever. (and to be clear, am not saying that you specifically said this. My comments are in response to the entitledness to the status-quo in some of the other comments.)
If there are alternatives, they will be pursued.
If someone had bet their livelihood on it,
and they are not in the majority (i.e. unlikely to be given any special consideration in any broad policy)
chances are they will face a hard time, unless they can adapt quickly enough.
Very good points.
Now anyone reading this, please consider
whether there is plenty of supply of these “value-additions”
whether there are cheaper alternatives to fulfil some/all of these “value-additions”
…and that will help one arrive at a more accurate understanding/expectation
of why these are being disincentivised / other activities incentivised.
Note: For anyone else reading this, when you read “disincentivised”, don’t think “ban”. Think “costlier” instead. That’s what it means.
@VijayNair
regarding the rest of the post,
glad to know that you have done well so far.
However, since the general consensus is that the overwhelming majority of folks engaged in these activities, do not share a similar experience as you currently do, i expect you will be forced to endure the regulations that are applied to the majority, even though some of them may not be necessary in your specific individual case.
That is until you can distinguish yourself from the rest. (which i think the regulations already allow, and i expect will do in a better more formal manner in the future)
PS: Based on the earlier comments in this thread, i suspect you have arrived at the same conclusion already and are well prepared for the upcoming changes.
…or they should not be in this specific market holding that specific financial instrument right now.
I do not see any contradiction / irony in this.
For the scenario described in the above comment,
there are better suited financial instruments
less volatility
less risk
less time required to be spent learning, understanding, staying abreast of the evolving financial markets
that are ideal for folks who are primarily not in the financial markets due to their familiarity/expertise with it,
but solely to avoid missing out on any potential upsides.
Disincentivizing such participation, and encouraging such folks to opt for alternatives requiring less of their time spent exploring and deploying financial instruments and more on the other activities that they have expertise in sounds prudent.
(Note that we are not talking about the folks here whose)
I cannot prove this beyond any reasonable doubt, no.
But here’s what i believe -
Even with the current volume of unsophisticated retail participants,
a trend can be established using coordinated channels of traditional/social media,
using these unsophisticated retail participants as the front,
and that is often enough to trigger the rest of the financial machinery
to participate in the trend to go along with it and make a quick buck.
I think it would help to remove easily manipulated retail individuals from the equation
that are ending-up being puppets for the large entities manipulating the market with a lot of middle-men involved on traditional media and social-media.
Once this is done, then the regulators tightening the noose around the large market manipulators a.k.a. the “smart money”, does not run the risk of the “smart money” attempting one last big push to YOLO all the risk onto the unsuspecting puppet retail individuals in the market, leaving them holding the bag of duds in the long-term.
I see the current move by the regulator to forcefully eliminate the unsuspecting retail individuals from a certain part of the market, as accidentally revealing their hand.
I fully expect an imminent set of regulations that would force the institutional investors to take drastic measures, including trying to dump all their risk onto any individual investors they find, which if this regulation goes well, they should not find any, when the time comes.
Of course, with this path chosen, and regulations proposed, this scenario might not happen now. Hopefully, Just the threat of this eventuality, with a lack of an easy escape hatch (no easy access to “dumb money” to to dump upon and run away), might force the institutional investors to mend their ways and adopt lesser risk. Disaster averted. Maybe, we will be reading about it in someone’s autobiography 2 decades from now, after they have retired, that how close we came in 2025, to the Indian Rupee becoming the next Zimbabwean Dollar, or the Argetine Peso.
it will be interesting to find out how much of the retail participation volume in derivatives was to address this aspect vs. retail participation in derivatives without using it as a hedge to de-risk one’s holdings.
a. Not having derivatives (or costlier derivatives due to less liquidity) is a cost, yes.
b. But, is this cost higher than the costs borne due to “dumb money” speculating in derivatives.
If not, then it is a good trade-off (in aggregate), right?
Of course the individual folks bearing the costs in the 2 scenarios are likely different,
hence the reference to the trolley-problem earlier in this topic-thread.
Especially considering that there are other alternative financial instruments that an individual retail investor could use to obtain similar exposure (sure, almost no 2 financial instruments are identical) to potential upside and limit their downside? Thoughts?
Absolutely.
I don’t know for sure that they are doing nothing for the “remaining 70%”.
Are you sure about that?
@Meher_Smaran would you consider a request to explore and post more updates that affect “smart money” / institutional investors. It would definitely help improve the outlook/mindset of us folks on TradingQnA who are currently always caught-up looking at half the picture and crying “Oh woe is me!” ( PS: We promise to share such posts with our institutional investor friends and make them as smart as we are .
Sorry couldn’t resist. )
Isn’t that 1% too high a number already?
Remember, in this context, we are currently talking about
someone who does nothing else but research markets and trade. (not invest. not as a side-gig)
In my opinion. if we think of any other specific profession that requires
literacy
moderate to high training / specialized-education
to understand the sophisticated specifics in the domain
full-time dedication of focus/time
to monitor markets while they are open
and research the market while they are closed
and significant assets/capital/cash-flow
…i think we would be hard-pressed
to find something that can be justified
to dedicate 1% of a nation’s population towards
that too with the current level of low barrier to entry associated with active trading.
In light of this, having a simple periodic test with a score, or a credit-rating check with a reasonable threshold to pass, and if one fails, then being required to engage in less riskier financial instruments until one builds-up the necessary score/rating and is then allowed to retry in the riskier instruments in the near future, starts to sounds very reasonable. No?
Sure. This makes sense too. Broad-based regulations are usually optimal for the majority in aggregate.
There almost always being multiple possible tweaks,
being different and contradicting tweaks for various individuals,
that would lead to a slightly better outcome for each individual respectively.
Yes. A good trader adapts, I have adapted in the past and I am prepared to adapt in the future. I dont think Sebi will make derivatives market illiquid and untradeable. Even if that happens, I’ll move to actively trading stocks - or just retire and do gardening, travelling etc
