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trading myths busted

Top 3 Trading Myths Busted!

Trading myths are beliefs about trading that are not based on fact or reality but are instead perpetuated by popular opinion or tradition. Some common trading myths include:

1. Trading is easy and anyone can do it:

While it is true that anyone can try their hand at trading, it is not a simple task. It requires a lot of knowledge, skill, discipline, and patience to be successful in trading.

For Investment Managers like PMS/Investment Advisors, there are specified standards decided by SEBI for their Investor Return Disclosures. No such standard exists for the Trading community. Also, the authenticity of people who conduct trading seminars needs to be checked. A lot of them earn much more from educational courses rather than actual trading. Many people believe that trading is a way to make quick and easy money, but in reality, it is a long-term investment strategy that requires time and patience to see results.

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2. Trading is a get-rich-quick scheme:

We have heard people say sentences like some guy made lakhs in trading in just a few seconds. While that does tell you about the opportunity that this market can provide to you, it does not inculcate other aspects that come with it. Firstly, some traders have given years of their career exclusively to their passion for trading. It is a cumulative result of all these years that they can be at this stage. Secondly, their returns are to be taken on a total basis.

Zerodha founder and CEO Nithin Kamath recently shared why only a small percentage of people succeed in stock trading. He said, active trading is like running a business, only a small percentage succeeds. “I’m surprised that, so many are surprised that just 1% of active traders make more than bank fixed deposits over a 3-year time-frame. The only easy bit about trading is starting trading,” he said.

3. Everyone is earning Crores in Trading:

This is a grossly incorrect statement because trading is a “Zero Sum Game“. If a trader gains money, the counterparty to those transactions needs to suffer losses. At some times even both parties to the trade lose money and only the broker earns money. This necessarily doesn’t happen on an individual basis but on a total basis. Brokers and Government are the clear winners. Trading is a huge income generator for the Government regardless of who earns money in form of STT.

Lastly, it does not mean that no one should do trading, the subtle message is just that do thorough homework if one intends to do so and devote proper time and effort to it. It is important to be aware of these myths and not be swayed by them when it comes to trading. Instead, take the time to educate yourself and make informed decisions based on sound analysis and strategy.

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Ketan Pitrubhakta

Ketan is a Chartered Accountant and a CFA Level 2 Candidate. He is passionate about reading Financials and understanding Business models. He likes to read non-fiction and plays badminton in his free time.

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