Who makes Money Consistently in Day Trading ?

 

One can understand the obsession for Day Trading by just doing a Search on Google for the Words like  - Day Trading, Intra Day Trading Tips, Day Trading Tips and the no of sites that pop up catering to it.

BSE an exchange in India mentions itself to be the fastest exchange in the world.

Nifty 50 index is world’s most actively traded derivatives contract: Survey - Link

Majority of brokers have 90-96% of their business coming from Derivatives

There are a bunch of Discount Brokers with 0-20 rs as broking change.

This clearly shows there are a lot of trades which get executed as a Day Trade across the world.

Not many things best the kick of a Profitable Day Trade, it can almost border towards addiction. ( My most early learnings were by losing a bomb in Day Trading in Derivatives and still get those bouts of Day trading but can control it like a one off street side fast food. )

There is a saying that 95% of Day Traders lose money but the expectations of novice traders is not just about being profitable but being consistent on a daily/monthly basis.

Some statements and expectations of Day Traders

• How to make *000 Rs in Day Trading every month.
• Can you earn at least Rs. 70 - 80 k per month with share trading and investing on a capital of Rs.5 lakh?
• How can I make 500 daily from India stock market if I only have 10000 to invest?
• Can i get 20 points in Nifty every day.
• I want to make 200 points in Nifty every month.
• I want to double my money every 1-3 months in Options.

If you have any expectations I would be able to answer the above questions - STOP READING.

I believe there are a few succesful day traders and they are exceptional and extra-ordinary. Its tough to make money consistently in Day Trading. ( Maybe will write another post on it.)

So lets see who makes money consistently in IntraDay Trading.

1) The Government

2) Your Broker

3) The Exchange

4) SEBI

Irrespective of the trader making money or Not the above three definitely make it consistently with every single trade of yours.

How do they make money  ?

( Taking just 1 lot of Nifty for ease of calculation. )

Government

1) STT on every trade.

The STT applicable is 0.01% of the trade value.

So consider you trade 1 lot of Nifty everyday.

STT = 0.01% (STT rate) x 8000 (selling price) x 1 (lots) x 75(lot size of Nifty)  = Rs 60.

2) Income Tax

If your profitable the IntraDay Trading Income goes into Business Income and you pay taxes as per the slabs. You can deduct expenses from the profits and reduce the effective Income Tax lower.

3) Service Tax

The government gets a Service Tax of 14.5% on ( Brokerage + Transaction Charges of Exchange ) . Even though the number would be small but it all adds up.

Broker

Brokerage

There was a time brokers used to make a killing from giving huge leverage to IntraDay Traders but now that charges have dropped to a fixed 20 rs with some and majority of the brokers charging 0.02 to 0.05% on value of the trade can consider the charges as follows.

Brokerage = 0.04% (Brokerage rate) x 8000 (selling price) x 1 (lots) x 75(lot size of Nifty)  = Rs 240.

So the brokerage can roughly be considered in a range of 40 to 240 rs.

Exchange

1) Transaction Charges

NSE charges roughly around 0.00325% or around 325 rs per crore of transaction.

Transaction Charge = 0.00325% (Brokerage rate) x 8000 (selling price) x 1 (lots) x 75(lot size of Nifty)  = Rs 19.5.

Also apart from this NSE makes money from Data Feeds / IISL and many other ways because of a well traded market.

SEBI

Sebi also charges Rs 20 per crore of trade.

Roughly comes to 2.4 rs.

So how much do these entities make every time you execute an IntraDay Trade.

So consider you trade only 1 lot of Nifty in a day this is the net amount of money made by the above entities

Intra Day Trade Money Made  = STT + Brokerage + Transaction Charge + Service Tax + SEBI charges = Rs 130

On the lowest possible brokerage you contribute around 130 rs to the above entities.

Consider you just make 100 trades or roughly 8-10 such trades a month. You would be contributing Rs 13000 out of which around 8000 goes to government in form or the other.

The government / exchange / broker / sebi do not convert every rupee you contribute to a profit but do have their set of expenses.

Also if you are profitable you also contribute 10-33% of your Income to taxes.

The government does not payback the STT if you lose money.

Conclusion

The folklore saying is 95% of the Day Traders are not proitable. But if you are a Day Trader and not making money you can take solace in the fact that you are a little more patriotic in contributing to the government and other entities. I have met a lot of such patriotic people who continue to strive hard for a really long time !!

As per my view the amount of skills/temparement/brilliance needed to make money increases with reducing time period of investment/trade.

For example a Long Term Investor can be totally dumb and even being invested in random stocks can make money if one is invested in a Growing Economy. ( Example India has grown in last few decades. Japan would be tough. )

Day Trading seems the Easiest to make Money, it is the most difficult way to make money.But there is no better kick or addiction then Day Trading. Will try writing about it in another post.

There is an entire industry around providing all the tools for it. The exchanges fight for being the fastest exchange, brokers giving huge leverage , Softwares with Real Time Data Feeds, Automated Signal Systems, Advisors selling you a package.

Sometimes I feel there are more Advisers than Traders in India.

( The funny part I am an Investment Adviser too. Do not have a Day Trading Service.)

(P.S -  Did try Day Trading Service once for a short period with an analyst in the team. Guilty of not understanding that even if u can spot day trades which itself is amazingly difficult, you cannot control emotions/ discipline of a Day Trader. )

Disclosure - We do have an Advisory Service for Short Term and at times trades can convert into a Day Trade.