Markets, particularly the derivatives segment, has gone through significant structural changes. These changes, coupled with increased trading costs, have reshaped market dynamics. While SEBI's had taken steps to protect small investors, but actually it has hurt FII and now the scenario of falling market which we are witnessing daily is the consequence of that steps. It has changed fundamental behaviour of market.
Many traders find it increasingly challenging to maintain profitability and sustain their operations. The new regulations have disrupted established trading strategies and forced market participants to adapt to a new environment.
After covid there was massive increase in Demat account and entry of young traders who were seriously considering trading and investing as their source of income due to digital platforms and apps which helped them to do seamless trading. India's broking industry is one of the fastest-growing segments of the financial sector and has grown rapidly in the last 4 years. But cost of increased STT has made difficult for all traders to survive.. In a bull market, the cost gets absorbed by the returns generated, but in the kind of market we are in right now, it becomes difficult for professional traders and investors to justify trading and investing as their only source of income
We really don’t know if this is a temporary phase or if it is going to remain like this.
Indian derivatives market was seeing a very high upsurge in the derivatives volumes, which was not only attracting domestic money but also money from across the globe in Indian Markets. Rather than curbing the derivative market as a product, the entry barrier with higher margins could have helped to keep small investors away from risky derivative products, and it could have matured markets and segmented them better.
The broking Industry grew in the last 4 years, increasing from 40 million in 2019 to over 185 million by 2024. it will definitely become stagnant and dull compared to the growth seen in previous years.
There is significant disparity in trading costs. In India compared to global markets., the cost of trading exceeds Rs 10,000 per crore, whereas in most major global exchanges, it is approximately Rs 5,000 per crore in rupee terms. So traders have already started exploring other markets as viable option.
This substantial difference poses a serious challenge for professional and algorithmic traders who engage in continuous trading. With narrowing profit margins and elevated costs, sustaining operations becomes increasingly difficult, raising concerns about the long-term viability of trading in Indian markets.
Traders are facing challenges on multiple fronts in India’s derivatives market, with multiple reasons such as changing structure, higher cost, and obsolete strategies that were working previously.
Traders who were working only in Bank Nifty weekly expiries have moved to Nifty, so many changes are happening. That could even be a reason for drying of volumes.
Positional trading has caught up but traders are still in testing mode. It will take some time for traders to find their sweet spot.
Making money in the markets is likely to be more challenging in 2025. The strategies and patterns that helped traders and investors generate profits over the past two years may not hold up in the current environment.
To succeed, we must lower our return expectations and focus on enhancing our skills and strategies to effectively adapt to evolving market dynamics.
Adaptation to new style of working and trading with correct understanding of trend is the only alternative and for that we are always there to guide.
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