Ph.D.

Viva Voce
Presented by Abhijeet Birari
Guided by: Dr. Mohan S. Rode (M.Com, Ph.D.)

AN ANALYTICAL STUDY OF DERIVATIVES

TRADING RISK MANAGEMENT WITH
REFERENCE TO BSE AND NSE

Presented at Swami Ramanand Teerth Marathwada University, Nanded on 14 July 2018

INTRODUCTION

Capital
Market

Primary Secondary Stock

Market Market Exchange

BSE NSE
INTRODUCTION
Derivatives
Market

Forwards Futures

Options Swaps

Call Option Put Option

Warrants Basket

Leaps
STYLES OF TRADING
Time Styles of Trading
Frame EOD Macro Intraday News Position Scalper Swing Technical Trend

Monthly
Weekly
Daily
4 Hour
1 Hour
30
Minute
15
Minute
5 Minute
1 Minute
DERIVATIVES AND RISK MANAGEMENT

• Derivatives trading involves risk of losing all the money.

• Risk management is the art of keeping risk of ruin at an acceptable level

while maximizing profit.

• It involves choosing an appropriate number of shares or contracts to trade.

• Risk management is done to achieve two goals: survival and prosperity.

OBJECTIVES OF RESEARCH

• To make comparative analysis of selected derivatives stocks of Bombay Stock Exchange

and National Stock Exchange.

• To study risk management of derivatives traders of selected cities in Maharashtra by

analyzing their trading activities.

• To understand the reasons behind the success and failure of these traders in derivatives
market.

• To analyse the consistently successful traders in derivatives market to find out the best
practices adopted by them to manage the risk.
HYPOTHESIS

• H01: The variances of deviations of BSE and NSE stocks are equal.

• H02: The derivatives stocks of BSE and NSE are equal in terms of risk.

• H03: There is no significant difference between trading performance of traders in

different cities.

• H04: There is no relationship between duration of trading and profit/loss incurred by

traders.

• H05: Traders’ concentration equally on strategy, psychology & money management.

LIMITATIONS

• The study used convenience sampling therefore the limitations of convenience sampling
like researcher bias and inability to generalize the findings.

• Due to limited time, limited cities could be covered.

• There was great difficulty in collecting respondents’ database as it was confidential in

nature and was available mostly with broking firms.
REVIEW OF LITERATURE

• Kent (1996) analyzed new buy and sell recommendations of stocks by security analyst
at major U.S. brokerage firm shows significant, systematic discrepancies between
prerecommendation prices and eventual values.

• Odean (1998) tested the disposition effect, the tendency of investors to hold losing
investments too long and sell winning investments too soon, by analyzing trading
records for 10,000 accounts at a large discount brokerage house. These investors
demonstrate a strong preference for realizing winners rather than losers.
REVIEW OF LITERATURE

• Mark Grinblatt and Matti Keloharju (2001) find evidence that investors are reluctant
to realize losses that they engage in tax-loss selling activity, and that past returns and
historical price patterns, such as being at a monthly high or low, affect trading.

• Juhani Linnainmaa (2003) showed that individual day traders are reluctant to close
losing day trades. They even sell other stocks from their portfolios to finance the
unintended purchases. This disposition to ride losers has significant long-term welfare
consequences.
REVIEW OF LITERATURE

• Alok Kumar (2006) shows that people's propensity to gamble and their investment
decisions are correlated. At an aggregate level, individual investors prefer stocks with
lottery features, and like lottery demand, the demand for lottery-type stocks increases
during economic downturns. In the cross-section, socioeconomic factors that induce
greater expenditure in lotteries are associated with greater investment in lottery-type
stocks.

• Brian (2012) studied the performance of trend-following investing across global

markets since 1903, extending the existing evidence by more than 80 years. They found
that trend-following has delivered strong positive returns and realized a low correlation
to traditional asset classes each decade for more than a century.
REVIEW OF LITERATURE

• Jaya Prosad (2014) investigates the presence and impact of four behavioral biases in
the Indian equity market, namely; herd behavior, optimism (pessimism), overconfidence
and the disposition effect, using both primary and secondary data. The results reveal
that herd behavior is not seen in the overall market, although, it persists in a bull phase.
Additionally, overconfidence and the disposition effect also prevail in the Indian equity
market.
RESEARCH METHODOLOGY

• Sources of Data:
– Primary Data : Through structured questionnaire
– Secondary Data : Books, research papers, articles, websites etc.

• Sample Size: 300

• Sample Area:
– Mumbai
– Pune
– Aurangabad
– Nasik
– Jalna
– Nanded
RESEARCH METHODOLOGY
• Sampling Method: Convenience Sampling

Respondents
RESEARCH METHODOLOGY
• Sampling Method: Convenience Sampling

Number of active
Name of City
derivatives traders
Aurangabad 300
Jalna 100
Nasik 250
Nanded 150
Pune 1100
Mumbai (Dadar) 400
Total Population 2300
Sample Size 300
RESEARCH METHODOLOGY
• Data Collection:
– Pilot Survey

• Statistical Tools:
– One Way ANOVA
– Chi Square
– SPSS and Excel applications
DATA ANALYSIS
 DATA ANALYSIS
General Comparison of BSE and NSE Comparison of variance of BSE and NSE stocks
Basis of Comparison BSE NSE
Standard Deviation Average
Founded in 1875 1992
16
14
Benchmark Index Sensex (30) Nifty (50) 12
10
Listed Companies (April 2015) 5650 1740 8
6
Market Capitalization 1.68 Trillion 1.5 Trillion 4 BSE
2
0
Network Over 400 cities Over 2000 cities
Global Rank 10th 11th
Companies in Derivatives Segment 175 184
Average Daily Turnover 6,630 2,91,541
(in Rs. cr.) Standard Deviation Average

(F&O segment-Jan 2016) 25

20
Average Daily Turnover 3,150 17,557 15
10
(in Rs. cr.) 5
NSE
0
(Cash segment-Jan 2016)
Basis of Comparison BSE NSE
 DATA ANALYSIS
Comparison of ROI of BSE and NSE stocks Comparison of Beta of the stocks

ROI BSE Stocks (%) ROI on NSE Stocks (%) BSE Stocks NSE Stocks
Godrej Consumer 240.9 Aurobindo Pharm 603.8 Adani Power 2.24 Aurobindo Pharm 1.07
Sun Pharma 236.6 Lupin 280.7 Axis Bank 2.01 Bharti Airtel 0.97
BPCL 170.7 HPCL 271.9 Bajaj Auto 1.1 HDFC 1.17
LIC Housing Fin 159.1 HUL 204 BPCL 1.35 HDFC Bank 1.16
TCS 110.3 HDFC Bank 142
DLF 2.47 Hero Motocorp 1.06
Idea Cellular 103.3 HDFC 86.5
Godrej Consumer 0.88 HPCL 2.58
ITC 87.9 Hero Motocorp 58.9
Hindalco 1.77 HUL 0.57
Bajaj Auto 71.5 Voltas 53.3
Idea Cellular 1.05 IDFC 1.05
Axis Bank 64.3 Siemens 50.4
IFCI 2.28 Indiabulls Real 2.04
Reliance -3.9 Wipro 26.6
ITC 0.67 Lupin -0.04
Tata Power -48.6 Bharti Airtel -2.9
LIC Housing Fin 1.45 Siemens 1.57
IFCI -58.7 IDFC -35.2
Reliance 0.95 Suzlon Energy 2.43
DLF -60.7 Indiabulls Real -49.6
Sun Pharma 0.27 Vedanta 1.83
Hindalco -65.5 Suzlon Energy -61.5
Tata Power 1.22 Voltas 1.33
Adani Power -75.1 Vedanta -69.7
TCS 0.6 Wipro 0.27
 DATA ANALYSIS
Comparison of volume of BSE and NSE stocks

BSE Stocks NSE Stocks

IFCI 20,97,887 Suzlon Energy 2,23,02,858
Axis Bank 13,70,271 IDFC 1,52,08,012
DLF 12,16,609 Indiabulls Real 64,56,902
Hindalco 10,10,718 Bharti Airtel 48,50,843
Adani Power 9,25,505 Vedanta 46,99,272
ITC 7,94,076 Aurobindo Pharm 36,55,452
Idea Cellular 5,76,454 HPCL 36,53,414
LIC Housing Fin 5,21,697 HDFC 30,00,886
Reliance 4,85,935 HDFC Bank 27,21,060
Tata Power 4,50,363 Voltas 20,64,473
BPCL 2,44,108 HUL 19,53,214
Sun Pharma 2,09,033 Wipro 16,64,578
TCS 1,29,657 Lupin 8,55,859
Bajaj Auto 40,880 Hero Motocorp 4,59,938
Godrej Consumer 32,852 Siemens 2,95,581
 DATA ANALYSIS
Duration of Trading Trading Status of Respondents
How long have No. of Percentage
you been trading? Respondents Do you still trade No. of Percentage
1 month 14 5% in market? Respondents
6 months 26 9% Yes 283 94%
1 year 62 21% No 17 6%
2 years 54 18%
3 years 40 13%
> 3 years 104 35%

Segment of Trading Awareness About Risk Involved

Are you completely No. of Percentage
In which segment do No. of Percentage
aware about risks Respondents
you trade mostly? Respondents
involved in derivatives
Equity 206 69%
trading?
Commodity 89 30%
Yes 197 66%
Currency 5 2%
No 103 34%
 DATA ANALYSIS
Underlying Asset Traded by Respondents
Derivatives Product Traded by Respondents
Which underlying No. of Percentage
Which derivatives No. of Percentage asset do you trade Respondents
product do you Respondents often?
trade most? Index (Nifty, Bank
Futures 217 72% Nifty) 128 42.67%
Options 83 28% Stocks 76 25.33%
Gold 29 9.67%
Crude Oil 25 8.33%
Gold, Silver 11 3.67%
Silver 7 2.33%
Base Metals 6 2.00%
Lead 4 1.33%
Type of Trading USD-INR 2 0.67%
What type of trading No. of Percentage Nickel 2 0.67%
do you do most? Respondents Copper 2 0.67%
Day Trading 149 50% Agri 2 0.67%
Delivery based trading 151 50% Other 5 1.50%
DATA ANALYSIS
Amount Invested in Market
How much amount No. of Percentage
have you invested till Respondents Basis for Trading
now?
Upto 50,000 94 31% What is the base of No. of Percentage
50,000 - 1 lac 64 21% your trading? Respondents
1 lac – 3 lac 81 27% Own analysis 163 54.3%
3 lac – 5 lac 29 10% Tips from broker 130 43.3%
5 lac – 10 lac 22 7% Screen based trading 81 27.0%
Above 10 lac 10 3% Television 72 24.0%
Tips from friends 32 10.7%
Family circle 32 10.7%
Newspaper 27 9.0%
Weekly Volume of Trading Reports of research
agencies 7 2.3%
What is your weekly No. of Percentage
Technical Analysis 4 1.3%
volume of trading? Respondents
Fundamental 2 0.7%
1 lac to 25 lac 146 49%
Indicators 1 0.3%
26 lac to 50 lac 68 23%
51 lac to 1 crore 54 18%
1 crore to 25 crore 29 10%
Above 25 crore 3 1%
 DATA ANALYSIS
Brokerage and Account Opening Charges of Brokers in India
Brokerage Charged to Respondents
Name of Account Brokerage
Broker Opening Charge
Zero for delivery What is the brokerage No. of Percentage
Rs 200 for trading
Zerodha Rs 20 per trade for charged by your Respondents
account
F&O broker (in %)?
Upstox Free Rs 20 per trade Less than 0.005 32 11%
0.1% and .01%(max Rs 0.005-0.01 45 15%
Fyers Free
100) 0.01-0.02 70 23%
Trade 0.02-0.03 35 12%
Pay maximum of Rs 15
Smart Rs 400 0.03-0.05 42 14%
per trade.
Online Above 0.05 0 0%
Angel I am not aware of it 76 25%
Zero .22% and .02%
Broking
Bonanza Zero .10% and .01%
ICICI
Zero .55% and .05%
Direct
AXIS Direct Rs 999 .5% and .05%
Edelweiss Rs 750 0.35% and 0.03%
Geojit BNP
Zero .30% and 0.03%
Paribas
HDFC
Rs 999 0.5% and 0.05%
Security
 DATA ANALYSIS
Awareness about Costs Involved in Trading Charges on Derivatives in Various Segments
I am aware about No. of Percentage
following charges on Respondents Equity Equity
Commodity Currency
trading apart from Futures Options
brokerage 0.05% on sell
0.01% on sell 0.01% on sell side
Annual Maintenance STT/CTT side (on No STT
165 55% side (Non-Agri)
premium)
Charges
Security Transaction NSE: NSE: 0.053%
144 48% Non-Agri: NSE:
Tax 0.0021% BSE: 0.027%
Transactio 0.0036% 0.00135%
BSE: 0.0007% MCX-SX:
Transaction Charge 134 45% n charges MCX-SX:
MCX-SX: 0.027% (on Agri: 0.00275%
Service Tax 123 41% 0.0014% premium)
0.0013%
DP Charges 118 39%
Stamp Duty 86 29% 15% on 15% on 15% on
15% on (brokerage
(brokerage + (brokerage + (brokerage+
Call and Trade Service tax + transaction
59 20% transaction transaction
charges)
transaction
Charges charges) charges) charges)
SEBI Charges 57 19%
SEBI Rs. 20 /
Education Cess 49 16% charges
Rs. 20 / crore Rs. 20 / crore Rs. 20 / crore
crore
SMS Alert Charges 42 14% Stamp Duty Charges (Maharashtra State)
Higher Education
31 10% Futures Options Currency Commodity
Cess
0.002% 0.002% 0.002% 0.001%
I am not aware of any
84 28%
other charges
DATA ANALYSIS
Leverage Taken by Respondents Net Result of Trading
How much leverage No. of Percentage
do you mostly take Respondents
while trading? What is the net No. of Percentage
Less than 5 times 97 32% result of your Respondents
5 to 9 times 72 24% trading till now?
More than 10 times 20 7% Overall Profit 112 37%
I don’t trade on Overall Loss 188 63%
71 24%
leverage
I don’t know what
40 13%
leverage is

Citywise Statistics of Profit and Loss

LOSS PROFIT
5 to 10 3 to 5 1 to 3 50000-1 10000- 10000- 50000-1 1 to 3 3 to 5 5 to 10
> 10 lac 0-10000 0-10000 > 10 lac
Lac lac lac lac 50000 50000 lac lac lac Lac
Pune 0 0 1 9 7 14 1 1 9 1 3 2 2 0
Mumbai 0 0 1 5 8 16 4 1 5 1 6 2 1 0
Aurangabad 0 0 1 5 6 11 4 8 9 3 3 0 0 0
Nasik 0 0 1 2 3 12 6 10 7 5 4 0 0 0
Jalna 0 0 0 10 18 8 0 1 7 2 4 0 0 0
Nanded 0 0 0 3 9 20 4 2 4 4 3 1 0 0
 DATA ANALYSIS
Respondents’ perception regarding earning money Stoploss Used by Respondents
What do you think, when No. of Percentage Do you trade with No. of Percentage
do traders normally earn Respondents stop loss? Respondents
money? Yes, Always 72 24%
When market is going up 69 23% No 68 23%
When market is going Sometimes 109 36%
13 4%
down Rarely 51 17%
Both markets 218 73%

Loss Booked by Respondents Profit Booked by Respondents

When do you normally No. of Percentage When do you normally No. of Percentage
book your loss? Respondents book your profit? Respondents
Less than 1% 23 8% Less than 1% 37 12%
1% to 2% 70 23% 1% to 2% 78 26%
2% to 5% 71 24% 2% to 5% 78 26%
More than 5% 31 10% More than 5% 55 18%
I do not book loss, I I use trailing stop loss
105 35% 52 17%
wait for profit to come to book profit
DATA ANALYSIS

Success ratio of respondents Trading Plan of Respondents

What is your overall No. of Percentage

success ratio in Respondents Do you have your own No. of Percentage
trading? trading plan or trading Respondents
Less than 30% 114 38% rules?
30% to 60% 136 45% Yes 151 50%
60% to 90% 46 15% No 149 50%
Above 90 % 4 1%

Important Component for Long Term Success

According to you, which one of No. of Percentage
the following is the most Respondents
important component in long
term success of trading?
Trading Strategy 158 53%
Money management 82 27%
Psychological component 60 20%
DATA ANALYSIS

Problems Faced by Respondents While Trading

Poor communication

Lack of transparency

Lack of sufficient information

Inadequate availability of technology

Lack of professional advise

High transaction costs

Consistent losses

0% 5% 10% 15% 20% 25% 30% 35%

DATA ANALYSIS

Satisfaction Level for Broker's Services

Ease of Communication

Providing Updates Regarding Market/Positions

Technical Support

Customer Service

Brokerage Charges

Buying/Selling Recommendations

0 50 100 150 200 250 300

Extremely Satisfied Satisfied Neither Satisfied/Nor Dissatisfied Unsatisfied Extremely Unsatisfied
TESTING OF HYPOTHESIS
HYPOTHESIS 1:

H01: The variances of deviations of BSE and NSE stocks are equal.

F-Test Two-Sample for Variances

BSE NSE
Mean 9.64 10.35
Variance 8.22 16.26
Observations 15.00 15.00
Df 14.00 14.00
F 0.51
P(F<=f) one-tail 0.11
F Critical one-tail 0.40

REJECT NULL HYPOTHESIS

HYPOTHESIS 2:

H02: The derivatives stocks of BSE and NSE are equal in terms of risk.

t-Test: Two-Sample Assuming Unequal Variances

BSE NSE
Mean 1.35 1.27
Variance 0.45 0.54
Observations 15.00 15.00
Hypothesized Mean Difference 0.00
df 28.00
t Stat 0.33
P(T<=t) one-tail 0.37
t Critical one-tail 1.70
P(T<=t) two-tail 0.75
t Critical two-tail 2.05

ACCEPT NULL HYPOTHESIS

HYPOTHESIS 3:

H03: There is no significant difference between trading performance of traders in different cities.
Descriptive Data of Net-Payoff
95% Confidence Interval
Std. for Mean
N Mean Std. Error Minimum Maximum
Deviation Lower Upper
Bound Bound
Pune 50 1560 160299 22670 -43996 47116 -300000 650000
Mumbai 50 15380 147441 20851 -26522 57282 -300000 750000
Aurangabad 50 -15850 82661 11690 -39342 7642 -300000 200000
Nasik 50 -6160 87688 12401 -31081 18761 -450000 200000
Jalna 50 -41040 90023 12731 -66624 -15456 -250000 200000
Nanded 50 -7550 75958 10742 -29137 14037 -200000 300000

ANOVA Table
Sum of Squares df Mean Square F Sig.
Between Groups 89476546666.67 5.00 17895309333.33 1.42 0.22
Within Groups 3715677490000.00 294.00 12638358809.52
Total 3805154036666.67 299.00

ACCEPT NULL HYPOTHESIS

HYPOTHESIS 4:

H04: There is no relationship between duration of trading and profit/loss incurred by traders.
Descriptive Data of Net-Payoff
95% Confidence Interval
Std. for Mean
N Mean Std. Error Minimum Maximum
Deviation Lower Upper
Bound Bound
1 month 14 -3857 10091 2697 -9683 1969 -26000 10000
6 months 26 -1231 66508 13043 -28094 25632 -80000 300000
1 year 62 -14226 64829 8233 -30689 2238 -250000 300000
2 years 54 -43278 78732 10714 -64767 -21788 -450000 110000
3 years 40 -20825 194833 30806 -83136 41486 -300000 750000
> 3 years 104 13990 120688 11834 -9480 37461 -300000 500000
Total 300 -8943 112811 6513 -21761 3874 -450000 750000

ANOVA Table
Sum of Squares df Mean Square F Sig.
Between Groups 127643269568.71 5.00 25528653913.74 2.04 0.07
Within Groups 3677510767097.96 294.00 12508540024.14
Total 3805154036666.67 299.00

ACCEPT NULL HYPOTHESIS

HYPOTHESIS 5:

H05: Traders’ concentration equally on strategy, psychology & money management.

Important Component in Trading

Observed N Expected N Residual
Trading Strategy 158 100.0 58.0
Money Management 82 100.0 -18.0
Psychological
60 100.0 -40.0
Component
Total 300

Test Statistics
Important Component in
Trading
Chi-Square 52.880a
df 2
Asymp. Sig. .000
a. 0 cells (0.0%) have expected frequencies less than 5.
The minimum expected cell frequency is 100.0.

REJECT NULL HYPOTHESIS

MAJOR FINDINGS
MAJOR FINDINGS
1. Comparison of BSE and NSE

• There are total 184 companies on NSE and 175 companies on BSE permitted to trade in derivatives segment with
average daily turnover of Rs. 2,94,541 crore on NSE and Rs. 6,630 crore on BSE.

• Average standard deviation (of monthly return) of NSE stocks was 10.35 % as compared to 9.64 % on BSE.

• 6 out of 15 stocks on BSE gave negative return on investment as compared to 5 stocks on NSE. 3 stocks on NSE
had CAGR of less than 9%.

• Beta values of BSE and NSE stocks were not significantly different. FMCG and Pharma stocks on BSE and NSE has
lower beta (less that 1) values.

• The average volume of NSE was 87% of the total combined volume of BSE and NSE for the period mentioned
MAJOR FINDINGS
2. Risk Management of Respondents (Primary Data)

• It was observed that majority of traders had more than 3 years of trading experience in derivatives trading and
majority of them made profits.

• Majority of the derivatives traders were aware about the risks involved in trading. Those who were more aware made
more profits as compared to those who were not aware.

• Day traders and delivery traders were almost equal in numbers. Profitable derivatives traders were more as compared
to profitable day traders.

• Majority of traders made 1-5 trades in a week. It was observed that majority of traders whose weekly trades were
below 10 earned profits.

• As the weekly trades were less than 5, the majority of weekly volume of trading was also below 25 lac. Jalna had most
number of traders making weekly volume of 51 lac and above.
MAJOR FINDINGS
• Majority of traders took less than 5 times leverage. There were 25% respondents who did not trade on leverage and
13% respondents who did not know about leverage.

• Overall profit was observed by 37% traders where as 63% traders has net loss while trading. Jalna and Nanded had
highest numbers of loss making traders.

• Out of 300 respondents, 114 respondents had less than 30% success ratio and 136 respondents had 30%-60%
success ratio.

• Only 25% traders always traded with stoploss. Those traders who always trade with stoploss were more profitable
than those who didn’t.

• Only 17% traders used trailing stoploss to book profit which is the profit booking strategy followed by successful
traders worldwide. Majority of profitable traders booked profile by using trailing stoploss.

• When it comes to booking loss, majority (35%) traders do not book loss at all, rather they wait, watch and hope that
price will retrace to their level and then exit.
MAJOR FINDINGS
• Major reasons behind failure of traders were overtrading, indiscipline, not using stoploss, unawareness about risk and
costs and higher leverage.

• While analyzing the satisfaction level for various services provided by broker, majority of them were unsatisfied with
brokerage charges and buying/selling recommendations provided by broker. They were satisfied with technical
support, customer service, ease of communication and providing updated regarding market.
MAJOR FINDINGS
3. Risk Management by Successful Traders (Secondary Data)

• The three major aspects of successful trading are Trading Strategy, Money/Risk Management and Psychological
Component where the latter two contribute more than 90% in success.

• In trading strategy, successful traders tend to use technical analysis to analyze the security and use trend following
techniques as tool to make entry and exit.

• Trend followers typically use Moving Average, Donchian Channel, MACD, ADX and RSI to predict the upcoming
trend.

• In order to reduce the risk, successful traders use stoploss orders.

• Trailing stoploss is widely used to protect the capital as well as to increase the potential profits.
MAJOR FINDINGS
• Anti-Martingale strategy is used by winning traders to build up the profitable positions which increase the odds of
earning multiple returns while keeping the risk at manageable level.

• Successful traders have a complete written trading plan which specifies entry setup, quantities to buy, positions to be
added, markets to trade, risk to be taken, profits to be taken well in advance.
MAJOR RECOMMENDATIONS
MAJOR RECOMMENDATIONS
• Derivatives traders should trade on stocks and index derivatives contracts on National Stock Exchange due to its huge
volume, less volatility and small spread which would help them to reduce the risk arising out of illiquid contracts.

• Traders should stick to the market for a longer period of time therefore they should initially focus of survival in the
market rather than earning money because the research reveals that those traders who traded for more than 3 years
were most profitable.

• When it comes to choosing underlying asset, trader should trade in those assets which are highly liquid and in which
there is very high volume so that they will not face any problem related to buying/selling.

• The researcher observed that majority of traders were not aware about risks involved in trading and still they were
trading. There are various risks like liquidity risk, market risk, margin risk, technical risk etc. which affect profitability
of trader so they should get themselves educated about all the risks and then only initiate trading.
MAJOR RECOMMENDATIONS
• Day trading is riskier as compared to delivery based trading therefore only experienced traders having thorough
knowledge about market and risks should go for it. Beginners should strictly go for delivery based trading.

• While making investment in market, traders should not deploy huge amount of money and start trading. Rather they
should start with a small amount which they can afford to lose and then slowly increase it.

• It was observed that most of the traders took leverage of more than 5 times while trading which is very risky because
it increases the risk by that many times which is not good. Traders should always trade without or on very small
leverage.

• Traders should not concentrate only on winning trades rather they should focus more upon long winning trades and
small losing trade. In this way, even small profits would be sufficient to cover large losses in long run.

• A strict stoploss should be kept on each and every trade because it may happen that one bad trade may wipe out
months of losses. Before entering into a trade, trader should decide when he/she is going to exit in case market goes
against him/her.
MAJOR RECOMMENDATIONS
• In order to book profit, instead of keeping one set target for exiting, traders should use trailing stoploss to book
profit. This will not only ensure protection of capital but it will also increase chances of getting big profits.

• Majority of traders think that if they have a good trading strategy, they can be successful in market. Research and
experience of successful traders says that trading strategy contributes only 10-15% in long term success in trading
therefore all the traders should read and get themselves educated about how to remain disciplined and how to manage
their risk so that they survive for long term in market.

• Brokers should provide good trading recommendations and charge lesser brokerage to clients. They should aim at
increasing the profitability of clients and not increasing the brokerage of the firm.
SCOPE FOR FURTHER RESEARCH

1. The study can be done with higher sample size and with wider
geographical area.

2. Actual trading statistics can be analyzed in order to avoid sampling errors.

3. Comparative study of retail traders and portfolio management companies

can also be done.
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• Kent L. Womack, Do brokerage analysts’ recommendations have investment value?, The journal of finance, Vol. 1, 1996, pp. 137-
167

• Odean, Terrance, 1998, “Are Investors Reluctant to Realize Their Losses?” Journal of Finance53, 1775-1798

• Weber, M., and Camerer, C., 1998. 'The Disposition effect in Securities trading: An Experimental Analysis.' Journal of Economic
Behavior and Organization 33:2, 167-84

• Grinblatt, M., and M. Keloharju. 2000. The Investment Behavior and Performance of Various Investor Types: A Study of Finland’s
Unique Data Set. Journal of Financial Economics55:43–68

• Grinblatt, M. and Keloharju, M., ‘What makes investors trade?’, Journal of Finance, Vol. 56, 2001, pp. 589–616

• Dhar, Ravi and Zhu, Ning, Up Close and Personal: An Individual Level Analysis of the Disposition Effect (August 2002). Yale ICF
Working Paper No. 02-20. Available at SSRN: http://ssrn.com/abstract=302245 or http://dx.doi.org/10.2139/ssrn.302245

• Linnainmaa, Juhani, 2003, The Anatomy of Day Traders, working paper, UCLA, Los Angeles, CA
REFERENCES
• Barber, Brad M., Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean, 2003, Who gains from trade? Evidence from Taiwan, working paper,
University of California

• Goetzmann, W. N. and Massa, M., ‘Disposition matters: volume, volatility and price impact of a behavioral bias’,Yale ICF Working PaperNo.
03–01. Available at SSRN: http://ssrn.com/abstract=377043, 2003

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