SEBI has just released its new Profit & Loss analysis report for the Equity Derivatives Market, and the findings are alarming. According to the report, 91.1% of individual traders that is roughly 73 lakh retail traders in the Futures and Options (F&O) segment are incurring losses.
This widespread loss is not uniform and varies depending on age, geography, trading experience, and capital investment.
However, one of the key factors that significantly increases the loss percentage is the often-overlooked transaction costs. This cost includes brokerage fees, Securities Transaction Tax (STT), GST, and other taxes levied by stock exchanges.
While it’s a given that fees must be paid for various services, the question arises: Are traders getting a fair deal in return for these hefty costs?
Breakdown of Transaction Costs: What Are Traders Paying For?
A closer look at the breakdown reveals that individual traders paid a whopping ₹25,000 crores in brokerage fees during this period which was around 50% of the total transaction costs.
In FY24 alone, retail traders paid an estimated ₹26,000 crores in F&O transaction costs.
But are brokers providing services that justify these charges?
The numbers say otherwise. According to NSE data, 163 tech glitches were reported in FY24, leading to substantial losses for thousands of traders.
Despite paying significant brokerage fees, traders continue to face UI issues and technical failures that affect their trades, raising serious concerns about the quality of service they receive.
Are Stock Exchanges Delivering Fair Value?
The cost of trading doesn’t end with brokers.
Exchange transaction fees contributed around 20% of the total transaction costs. However, even stock exchanges are failing to deliver the expected quality of service.
A notable incident occurred in July 2024 when a technical glitch on the BSE server led to massive capital losses for thousands of traders.
Among many victims of that glitch, one of the reported cases with us was where the client lost ₹73,000 due to a BSE Glitch on July 12, 2024.
Now, the only option with such traders is to report the case to SCORES and wait for the response of SEBI which might help them in recovering losses.
For traders who pay such significant fees, it’s fair to expect exchanges and brokers to have robust systems in place.
Unfortunately, these frequent breakdowns raise questions about whether traders are receiving the value they’re paying for.
Are STT & GST Charges Fair?
Another large chunk of the transaction cost is attributed to STT and GST. While government levies are necessary, they do add to the cost of trading.
For instance, a trader executing a transaction with a turnover of ₹10,000 is required to pay 0.1% as STT, i.e., ₹10 to the government. Additionally, if the trader pays ₹40 in brokerage fees, an 18% GST applies to this, adding to the total cost.
Later the trader if makes a profit pays 12% STCG charges to the government.
Though these charges may seem small on a single trade, they accumulate over time, especially for high-frequency or intraday traders, severely impacting their overall profitability.
The Real Impact: Profitability Eroded by Hidden Costs
For many traders, especially those dealing in high-frequency or intraday trading, the combination of brokerage fees, exchange charges, STT, GST, and technical issues can significantly erode their profit margins.
Loss-making traders in the F&O segment are particularly vulnerable, with these costs increasing their losses and creating a barrier to profitability.
While F&O trading can offer high rewards, the associated transaction costs play a significant role in shaping traders’ overall profitability.
These often-overlooked expenses add up, making it crucial for traders to be fully aware of them and account for these costs when devising their trading strategies.
Would removing or reducing some of these charges bring a change in the profit and loss percentage of traders? It remains a question worth exploring.
Until then, traders must choose a reliable platform and demand better services in return for their hard-earned money.
