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Takeaways from SEBI report on retail intraday trading

SEBI’s report (link) on intraday cash trading by retail highlights the strong (~5x) growth in retail intraday traders over FY2019-23, driven by young traders with small trading amounts. Experience over FY2019-23 indicates that a large share (~70%) of retail makes losses, even though the average number of trades, trade size and loss per individual have declined, probably due to peak margin rules capping intraday leverage in 2021, in our view. The report makes no reference to potential future actions (unlike the F&O report), even though there has been a continuous clampdown by the regulator on unregulated advice by influencers.

Intraday cash equities market—key stats

Key facts about the equity intraday market from the SEBI report: (1) Around 1 in 3 people, who trade in the equity cash segment, trades intraday; (2) intraday traders increased from 1.5 mn in FY2019 to 7.8 mn in FY2022 and then, moderated down to 6.9 mn in FY2023; (3) the share of young traders (<30Y) grew to 48% in FY2023 from 18% in FY2019; (4) participation from tier-1, -2 and -3 cities grew to 3X, 5X and 10X, respectively, in FY2023 versus FY2019 and (5) the share of ‘very small’ traders (annual intraday turnover

Adverse P&L experience for the majority

In FY2023, 71% of intraday traders lost money, growing from 65% in FY2019 and 69% in FY2022. Around half (54%) of intraday traders who traded in all three years still lost money in FY2023. The proportion of profit-makers was highest in tier-1 cities, followed by tier-2 and tier-3 cities. Loss-makers carried out a greater number of trades than profit-makers. As a result, loss-makers also lost 57% over and above their aggregate trading loss as cost of trading during FY2023 (compared with 19% for profit-makers). From a demographic point of view, there is a clear pattern of a higher share of loss-makers among younger traders (~80% for <30Y versus ~55-60% for >50Y).

Potentially limited regulatory implications

A few observations on retail intraday trading when compared with F&O: (1) Average loss of ~Rs2,000 for intraday versus ~Rs80,000 for F&O traders, even though the share of loss-makers at ~70% in intraday is not materially lower than ~90% in F&O; (2) aggregate losses of Rs15-20 bn are much lower than in F&O trading (~Rs300 bn in FY2022) and (3) retail participation in options has grown much faster than their participation in cash; adjusting for delivery trades, retail option volumes are nearly equal to intraday cash as compared with ~10% in FY2019.

Past measures such as peak margin norms have already curtailed the leverage available in intraday trades. The regulator has been actively taking action against players that provide unregulated stock advice. It is unclear if intraday traders do end up creating a stock portfolio, which is held for a longer duration, for which the profitability could also be better than intraday and F&O trades.

Scope of the study

SEBI’s report covered individual client level data from top-10 brokers, accounting for 86% of individuals in NSE’s cash segment in FY2023. Data for individuals trading with multiple brokers was aggregated to arrive at a year-wise unique set of individuals. While individuals may have traded intraday as well as delivery, only intraday trades of such traders have been considered for the analysis.

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