F&O trading: Longer hours can accentuate ‘this’, warns Nithin Kamath. See post

The Zerodha founder and CEO believes that extended trading hours for F&O may signal the maturity of our markets, but he feels conflicted as it might affect the mental health of active retail F&O traders in the long term.

Taking to social media platforms, Kamath wrote, “Extended trading hours for F&O will maybe signal the maturity of our markets. They also level the playing field for domestic traders against international traders and are also good for capital markets businesses in terms of revenues, but I’m conflicted.”

“I’m unsure how it will affect the mental health of active retail F&O traders in the long term. Tracking P&L for long hours is stressful & can affect life outside trading,” the Zerodha boss noted.

Explaining further, Kamath said that active traders don’t make money, primarily due to overtrading and longer hours can accentuate this.

“While it could boost revenues for the capital markets business in the short term, I’m unsure if retail investors will end up doing better. This could then potentially lead to lower participation and liquidity in the longer run, which will affect everyone,” he tweeted.

Last month, capital markets regulator Sebi said it will soon issue guidelines on additional risk disclosures required to be made by brokers and exchanges to investors as its study suggested that every 9 in 10 individual traders in the equity F&O segment suffered losses in FY 2021-22.

The findings were part of a study conducted by the capital markets regulator under the supervision of a working group. The study analysed the trading by individual investors with regard to net profit or loss encountered by them in the equity F&O segment for the period FY19 and FY22 only.

It is based on a sample of all individual clients of all the top-10 stock brokers, accounting for 67 per cent of the overall individual client turnover in the equity F&O segment during FY 2021-22.

It revealed that 89 per cent of the individual traders (9 out of 10 individual traders) in the equity F&O segment incurred losses, with an average loss of ₹1.1 lakh during FY22. Moreover, 90 per cent of the active traders incurred average losses of ₹1.25 lakh during the same period.

On the other hand, only 11 per cent of individual traders in the equity F&O segment made a profit, with an average profit of ₹1.5 lakh in FY22. The percentage dropped marginally to 10 per cent for active traders, though the average profit made by them went up to ₹1.9 lakh during the same period, according to the study.

With agency inputs