Many people who trade and lose a lot of money do not understand many risks..some of them are:

1. Running out of money! If you have no ability to take delivery – which means you have to cut position, your bank balance and your stomach balance both are important. If you lack either one of them, cut your position by half at 3pm and full by 3.15pm. Technology nightmare stories are true even if they are difficult to believe.

2. Upside Risk is Much worse than Downward Risk: Silverline went from Rs. 25-30 to Rs. 300 to Rs. 1300. At any point in time its value was only Rs. 30. It was yester year’s Satyam. Nobody believed its balance sheet. If you had bought it at Rs. 1300, your loss would have been Rs. 1300. However, if you had short it at Rs. 300 your BROKER would have forced you to cut losses at say 1200 (assuming you paid the MTM, or it would have been sold off long back). Sadly the UPSIDE risk in a short sale is INFINITE..technically you can go bankrupt.

3. Trading costs: The speed at which people cut positions, do a ‘double’ buy – normally of  say ‘200 or 300 Nifty’ – ensures tremendous speed of trading. Add to this margins to be paid, and other costs, this churn hurts, and hurts badly :).

4. The FII behaviour: First of all there is no single animal called the ‘FII’ – remember they have ZERO expectation from equity markets if they can make 3-4% p.a. in the currency markets. This is because most of them are getting money int eh US markets at about 1-2% p.a. (in about 72 years you will double your money). Competing with this animal is impossible. It is like saying ‘I need to make 60 runs in 60 overs – frankly it does not matter whether Rahul Dravid or even Geoff Boycott opens the innings.

5. The impact of the media: When one channel talks about one company, the speed at which the market behaves is stunning. The movement can be up or down. Also if the MD /Chairman is not a good communicator, the anchor makes you feel he cannot manage the company also!

so as a trader know all this, understand all this and please remember all this…AND MUCH MORE!

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  1. This is a comment on Facebook by Mr. of the top traders whom I know well.

    “Subra, there are just a few tips for trading. Clear unbiased thinking. Switch off your mobile so that you do not get any tips from broker/so-called analysts. Most importantly, do not be in the market for recovery. You might not agree, but the goldmine lies in writing options. I can go on and on and on.”

    SK comes only on FB not on subramoney. I know many successful traders, and it would be my pleasure if SK agrees to write for me. I know SK from the days when he would buy 50 shares of a company (that was the min trading lot) to now when the does upwards of a few million rupees an hour!

  2. Based on what I have blogged many people think I am against trading. Alas! not true, not true at all. I meet many traders who are fairly competent and have brilliant track records of trading. Unfortunately Indian journalists do not have the ability to create books like what John Train or Jack Schwagger have created. Some of the traders have a net worth in excess of Rs. 20 crores – could not have been too bad is it not! SK is one of the traders I know and apart from trading skills has good communication skills. I also see people who do not know the diff between BSE and NSE saying ‘I am a trader’, i feel amused. To me these are ‘Voluntary contributors to the broker welfare fund’ not traders nor investors.

  3. Mr.Subra- Traders having networth of 20 Crores and above, you mentioning some time back that 20% of your portfolio is in trading and your trading returns are better than investment returns, may I know the annualized returns you or any other successful trader mentioned above makes from the market over a long term, say 10 years+.

  4. O.k. Fair. Can you tell atleast it is more or less than 30% annualized returns of Reliance Growth Fund for last 15 years or 40% annualized returns of Sundaram Midcap for last 8 years or 24% annualized returns of HDFC Equity Fund for last 15.75 years? The very idea behind the question is whether great traders are capable of generating returns atleast on par with good fund managers, over a long term? I’m really trying to understand that if trading has any real value.

    I would have the same 20 crores now had I invested just Rs.39 Lakhs 15 years ago in Reliance Growth Fund. Whether the trader is capable of making such returns on a long term basis over various market cycles?

  5. – like #4 very much, many say FII inflow is due to “value” still in the EM market etc and retail investor plonks down money and loses, but your post makes great sense.
    – a humble request to write more on trading and “trading rules” (something similar to of Dennis Gartman’s trading rules). thanks.

  6. know at least 10 guys with more than 70% CAGR over the past 10 years (2000 to 2010)…Last April one guy got 60% return (one month return, and no leverage)..these may not be useful bcoz it may be one off, but yes, most of them have beaten the s… off the fund schemes.

    this is of course, AFTER BROKERAGE, but before the profit-sharing agreement.

  7. @Muthu, @Subra

    Reliance Funds, generally (don’t know about each of their funds), churn the most vis-a-vis other fund groups. They may not do Swing trades or day trades, but do churn regularly. While ONE may do long-term investing with Reliance, BUT they may do SHORT TERM (< 12 months) trading for YOU. However, these guys are REAL PROFESSIONALS and know what they do. I, for one, do not. That brings to the next point.

    If one knows how & what to do, the person can make money through trading OR long-term investing OR anywherelse. OR lose money in either.

    However, going long-term on Index or Index-like structures (read funds) – one stands a BETTER CHANCE OR BETTER PROBABILITY to make money in markets. Easily too.

    The psychological belief is that everyone believes, he/she is BETTER than others and takes chances in trading & BEAT the market. However, experience makes one KNOW that he/she may not be better than others (alas, after losing money) and there is no better learning experience than in the markets and LOSING MONEY (I know . ).

  8. Mr.Subra- Agreed Sir. You can include the hindsight bias too.

    But the selection and survivor bias equally holds good for traders too! We do not know how many of them now are roaming on the streets of Mumbai! We are only talking about traders who have survived. You would be knowing Nassim Nicholas Taleb better than me. The survival rate for traders is abysmally low when compared with investors who would have atleast got the Sensex’s annualiuzed returns in the range of 18% if not 30% returns of Reliance Growth Fund.

    World’s most respected trader George Soros says ‘Survive first and make money afterward’.

    NPR- I agree with what you say.

  9. Muthu I do not know how many traders you know. These are serious players who can take real fast decisions and move big amounts of money and risk! These are guys who have their own offices, staff, – a couple of guys have a CA to look after their own accounting, tax, etc. These are not the regular Cnbc watching guys who punt on everything..they are called ‘voluntary contributors to the broker’s welfare fund’ NOT traders..

  10. Subra, somebody was asking about the returns a trader can generate over years. Returns can only be calculated based on the margin money put upfront. A successful trader can get in excess of 5-7% per month on this margin money. Most of this return should always be withdrawn from the market and put in other assets. The question is how much of his networth he should be putting upfront. I feel it should not be more than 10-15%. Remember, in a bad period like Oct 2008, this margin money can be wiped out. Unfortunately, in our markets people tend to put their entire investible surplus in trading. These guys are basically doomed even before their first trade…

  11. readers please understand SK is at least the equivalent of Sehwag if not Sachin Tendulkar. Learn from him …but be careful, do not do a copy paste 🙂 it may not work always.

  12. Subra,

    You were able to get SK on board here and what he has cautioned about needs to be ingrained by all traders, which I don’t have an appetite for.

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