Volumes Have Dropped Significantly on NSE & the Volatility Has Increased Multifold

General
#1

Has anyone observed that the volumes on exchanges have dropped significantly & the markets are way more volatile. Look at how Nifty Index has moved during Intraday.

This is just Phase 2 of the new Peak Margin rules. Imagine what might happen when we reach Phase 4.

It has really impacted the way I trade. Lesser the liquidity, more volatile the markets behave. There is also more slippage than what it used to be before. Executing Market Orders is a nightmare.

This rule was made to protect retailers from taking excess leverage & stop blowing up their accounts. But from what I think, if markets remain this volatile, sooner or later retailers will lose & they might start to shy away from trading. As far as I know, there has never been an incident of any broker defaulting. I don’t understand the necessity of bringing such strict guidelines.

@nithin can you please throw some light in this regard? Will volumes pick up eventually? Will there be enough liquidity like it used to be before? or will this be the new normal?

You’re in markets for so many years now. So I am troubling you with all these questions. Please do respond.

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#2

For now, the drop isn’t really much. Check this.

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Tough to say on what will happen to volumes. But there has been a huge rush in new customers over last year, maybe with lesser leverages their odds of survival will go up significantly. And with more traders, even with lesser leverages, the volumes should be the same.

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#3

Thank you! :smiley:

#4

I think not much would change , with rising financial education and knowledge + lowering interest rates people would move money in the market that would compensate this .

#5

Even if the peak margin requirements increase to 100% by September, there is always the benefit of hedging. A hedging will reduce not only the margin requirement significantly, but also the risk. Since there is no chance of SEBI changing their decision, one should slowly learn to reap the benefits of hedging.

#6

Last year when the lockdown was announced, my building security guard asked me if I can take some cash from him and transfer the same it to his relative’s bank account in his village. I did so once. I then called my bank relationship manager and got his savings account opened and taught him how to use UPI. So he started getting his monthly salary directly to his bank account and he could send money to his village without needing any help.

Just yesterday he told me he is considering making money in the stock market. He gave the reason that FD interest rates are very low these days. Apparently, he had seen someone in his circle who earns some profits. I asked him where is he thinking of opening an account. He said he is considering either Kotak, Zerodha, or Upstox. @nithin he knows about Zerodha.

To dig more, I asked him why has he shortlisted these three options. So he said Kotak because of trust in the bank and it’s closeby. Zerodha because his friend uses it and Upstox he found while googling. He asked me where do I have my account. I replied Zerodha. He then asked, can he lose all his money in a mutual fund too. I said, of course, absolutely. Everything is subject to market risk. I then told him that even a bank FD comes with a certain risk. Nothing is without any risk. I asked him why does he want to invest in mutual funds through a bank, he can do it himself saving the commission. So he replied because he trusts the bank.

He then asked me how do I earn from the stock market. I said, wait, hold your horses. What I do won’t help you. First, read, learn what is this and that, and then find your own way. Don’t try to ape me or get influenced by your friend and blindly follow anyone.

I really hope he gets the point. Only time would tell how greed and fear play him. Or if he outplays them. But to me, it’s a little alarming too when people with herd mentality are flocking to the stock market. More so with a mindset to make quick money. All is good in a bull market. Everyone is happy around. Only when there is a crash or when bears grip the market for a long uncertain, gloomy period is when the true character comes out and you know if one has the stomach to digest it or not.

8 Likes
#7

90% volume is coming from institutional traders and hardly 10% volume is contributed by retailers.
for your info

#8

Hmm… no. It is much higher. Around 40% for Equity and 30% for F&O.

And this is last month’s contribution by different participants to turnover.

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#9

Can u in simple words, tell me the margin difference in naked options buying / selling vs hedged?

#10

Simple, to sell a lot of Nifty 14800 monthly call, u need 160,000. But if you sell that lot and hedge it with, say, buying a 15100 call, the margin reduces significantly to around 46000. Also, the risk of naked selling is reduced.

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#11

Margin is still very high compared to max risk take iron condor,iron fly,credit vertical spread for risk of 5k approx 50k is requires