Yes there is intrinsic leverage. But if you want to make a Rs.50 rupee profit everytime Nifty goes up by 1 point, the risk one is taking via equity route is way way more than the risk an option buyer is taking. Also an option buyer pays the full amount from his capital. You can’t even pledge your holdings and hope to buy an option.
With equity there is always some one who knows more than you do and can play with the stock.
With equity liquidity can be an issue unless you are pretty selective.
With equity if you are technical trader like me believing backtested data, it is far more difficult to backtest equity because of split/bonus events and consequent data adjustment issues.
There is a reason why index derivatives (near 80%) contribute significantly more volume than equities in exchanges.
Having said these, if you feel comfortable with equity that is where you should start. Try out different things. Never loose a big sum in any of the trials. Persist and you are likely to find what works for you.
Bro you are asking what everyone want to ask . you might have read nithin’s tweet and everyone knows that its not the new thing to know. we knew that very less people make money and people with more capital, knowledge, a healthy mindset and more important experience make profits. I always have this doubt, if institutions are trading then they can not loose money because its others money ( Institutions like MF) so they always (most of the times) win is it like market is controlled as per their positions? ( we dont see institutions making big loss in FnO )
Trading is tough as you need to be better than your counterparty. Not just that, trading is an exhausting job and also depends on the psychology of the person who is trading.
Frankly it just boils down to psychology and money management.
If you look around there are quite a lot of people that earn way above 5 LPA (BPL now is 3LPA). There are lot of people who earn 10+ lpa into higher slabs but yet they feel middle class and lot are broke. They can’t even buy a scooty or a two wheeler without loan. yet keep complaining. They have no idea where their money is going , how much useless debt they took via direct and indirect and how much lifestyle inflation has really destroyed them.
That same carries over in the retail investors. No risk management , revenge trading, chasing loses, deviating from their own systems, impulsive risky trades using news events (may work first 3 times but definitely wipes out at some stage) are all what they do. Frankly the sign trading system is not going well or MM is wrong is when having -20% DD. It’s better take away entire money off table after losing 20% and referring trading journal or just cross check with forward testing results to see where things went wrong.
See psychology is what makes us run. At the end of the day emotions and money are a nasty mix.
Having a sane mind while trading the stock market depends a lot on having realistic expectations. Trading the market is like running a business. When we open a trading account we are actually starting a business. A business needs a solid plan and capital to start and keep it running. It needs time to grow, can book losses and can have profits. It should have accounting & auditing, compliance requirements, risk management practices. Each one of these aspects of a business applies equally well to trading.
However some aspects of trading as a business is quite unique to it. Unlike any other business trading is very easy to start. Today it takes around 10 minutes to get on boarded with a stock broker and account gets activated with in a day or two. With some stock brokers we don’t even need to pay anything for this process. Then it is possible to quickly avail funds analogous to secured (pledge holding) or unsecured debt (margin funding) even for credit unworthy individuals. Outside for a business to get loan it has to go through a strict vetting process and prove its credit worthiness to access debt funding. Last but not the least while a typical business can take time to book profit or loss the trading returns are instant.
Do not dive into trading if you cannot make peace with the reality about trading pictured above. You are likely to fail as 90% of the startups do in the very first year.
You must stop trading when your plan doesn’t work the way it should. If your losses are more than were anticipated in backtesting, you must stop. The market is volatile and you may not understand all that it does. It’s okay not to trade for a while and prepare your mind for that.
The market is not easily predictable. No matter how hard you try, you can never be 100% accurate at determining the market movements. New traders think it to be the Holy Grail and keep taking risks without realising that they are losing their capital.
It’s the eagerness to make money that ends their careers before starting. The advertisers do an exceptional job at making people believe that they will be able to make money easily through trading.
Lot of children go to the street or ground to be the next Tendulkar. But not many believe like he did or work like he did to be him. This is same with trading or any other field.
There is certainly the element of chance or luck but that will be found only if one is persistent on a path towards a goal.
