Introduction
Empirical investigation carried out after the establishment of the Stock exchange board of India(SEBI) has proved that the number of individuals involving the process of stock trading and business have increased significantly especially in the last five years. Even though empirical findings tend to argue that the primary reason for the increase in the individual investment in stock market is primarily due to the increase in public limited company and their share capitals in the said decade, cross sectional studies pertaining to investors psychology and choice bring it before the limelight that the primary reason for increase in the investors increase is primarily due to the profit making platform available considering professional assistance rendered for the monetary risk and financial loss associated with it. In this being the case, it could be found out in the recent times that the there is significant increase in the number of investors engaging in the process of day trading which were once an exclusive platform for professional traders alone.
The term day trading under Indian stock jurisprudence relates to a form of speculation in securities in which a trader buys and sells a financial instrument within the same trading day, so that all positions are closed before the market closes for the trading day to avoid unmanageable risks and negative price gaps between one day’s close and the next day’s price at the open. It is pertinent to note that according SEBI over 2 million of the Indian investors have started preferring day trading with a hope of higher profit. However, it could be found from the statistical data published by NSE and BSE that only very few numbers of investors ensure that they enjoy profit from the same while many suffer an adverse impact. These results confirm the ambiguity on the differences in investor vulnerability under day trading.
When an attempt to study the role of government and regulatory bodies in pursuance of the aforesaid ambiguity is carried out, it is found out that there are no specific las enacted for the purpose of protecting investor vulnerability in day trading. The Day Trading Rules tend to address the individual investors as a whole without recognizing the dynamics in the vulnerability of the said investors. The judiciary to its part, right from the famous case of Rusoday Securities Ltd. vs National Stock Exchange Of India have stressed on the fact through obiter dicta that only a particular group of individuals being benefited out of day trading amounts to exploitation. The SEBI in this regard had called for research to determine if there is a changing vulnerability of investors in day trading platform but no considerable output has been framed till this date, thereby amplifying the ambiguity.
Even though stock professionals and analysts’ tend to argue that the recognize that there is changing vulnerability of investors in day trading argue that the same is due to professional skill and expertise, the said conclusion could not be accepted for implementation of a proactive law, considering the fact that the said conclusion was a mere outcome of assumption and not statistically proven. At the same time, this ambiguity become more gleamed considering the certain investors even though a vulnerable in the day trading market tend to suffer negligible losses while compared to other, thereby urging a need for study.
Due diligence of the said ambiguity in global scenario proves that in developing and developed countries that have legalized day trading, have implemented various yardsticks and safety valves for investments to avoid extreme vulnerabilities which have also shown fruitful outcome. But the same cannot be directly applied in Indian stock market as a rules considering the fact that an arbitrary yardstick has an high chance of affecting ones right to better business. Hence it is essential to address the existing ambiguity so as to have a ensure equitable protection. Even though it is evident from the review of literature, more particularly the NSE and BSE report that certain investors make a profit from day trading, while many suffer loss help us recognize the ambiguity on the dynamics in the vulnerability of investors in day trading, however the ratio or the factors of dynamics and vulnerability is unknown.
The attempt of SEBI in the year 2014 to determine the said grey area, in respect determining the investor attitude towards day trading remains futile which in turn aggravates the said ambiguity at large. Even though stock professionals and analysts’ tend to argue that the recognize that there is changing vulnerability of investors in day trading argue that the same is due to professional skill and expertise, the said conclusion could not be accepted for rationale conclusion due to the fact that there is a high scope of bias and that the said assertions are mere opinions. The need of a proactive law could certainly not be captivated with such an assumption. Thus, making it clear that the research gap identified by SEBI remains undiscussed till this date.
In order to bring in executive action on day trading for protection from monetary and social vulnerability, it is essential that the said research gap need to be addressed in order to have a sound intelligible differentia and also achieve equity justice besides protecting individuals from vulnerability and also prevent certain group of individuals from exploiting the stock market by , uncertainty enjoying exorbitant profit by the way of exploitation, the aforesaid research gap requires to be addressed. These analyses prove that the identified research gap has scope of being carried out or studied using empirical evidences collected by primary means considering the fact that there neither procured statistical data or secondary source pertaining to the said research gap.
Tracing the investment patterns
From a total population of 539 samples, 54.3 percent of the investor respondents are male and 45.7 percent of the investor respondents are females. It could be inferred from the 2nd of the above table that the 26.5 percent of the Respondents are from the age group 32-41 years followed by 21.8 of the respondents belonging to the age group 22-31 years. It is also seen that this trend of investors keeps reducing as the age group is increasing as only 3.2 percent of the respondent are from the age group 71 years and above. This is because, the concept of day trading is a recently hyped one in the Indian stock market and thus is been preferred by investors of younger age group compared to elder age group, further the difference in the investor preference of day trading can also be associated with the risk factors associated with day trading or the challenges that the investors from greater age group may face due to the technological and investment knowledge that is required for taking part in day trading. The 3rd of the above analysis proves that none of the investors are illiterate which means that each of the respondent have the sufficient prudence to involve in day trading. Based on the above 3 findings, it could be suggested that awareness of day trading and the process of day trading need to be made by SEBI for the benefit of the older age groups.
It can be inferred that frequency of the investors in investing in day trading even though 34.3 percent of the investors who invest in day trading on a regular basis there are a few individuals who do not take part in day trading and such reluctance is not because of the absence of need, a quest into the said difference lead us to a speculation as to whether such reluctance is because of the vulnerability and there is high chance for dynamics in vulnerability
It is seen that majority of the investors prefer to invest in preferential and equity shares by day trading and only a very few investors prefer investing in debentures because of the risk factor and potential loss that is associated with investment in debentures under the guise of day trading. Over 22 percent of the investors have invested an amount between 1,00,000/- and Rs. 3,00,000/- while a few prefer to invest amount less than Rs.1,00,000/- and a few have invested an amount more than Rs.7,00,000/-. This investment dynamics in one or the other way gleams the research gap, as it can be speculated that the reason for difference in the level of investment is due to the difference in the effects of day trading among investors.
Effects of day trading on investors
It can be seen that 35.4% of the investors strongly agree that the effect of day trading is making of higher profit and only 5.3 percent of population strongly disagree to the same. This result pave way to infer that the day trading allows investors to make a higher profit in a single day. Further 43.9 percent of the population strongly agree that the day trading paves way for lesser tax implication. Over 33 percent of the investors feel that they are able to get the money invested at the earliest Able to get the money invested at the earliest and about33.5 percent of the population in the sample frame find independence in day trading.
At the same time, it is seen that 41.3% strongly agree that they are stressed due to investment by day trading and bout 49.4% strongly agree that there is always an uncertainty in day trading. The percentage analysis show that 35.4% strongly agree, there is always a psychological addiction due to day trading investments and about 31.1% have experienced financial loss due to day trading.
Therefore it is found that day trading has certain positive effects such as Making higher profit in a single day, Lesser tax implication, Able to get the money invested at the earliest, independence and Overseas investment without liability and at the same time day trading is also associated with certain negative effects such as Stress, Always a risk associated with day trading, Uncertainty, Financial loss, Psychological addiction And Greater time investment. These results permit to make a recommendation that the a guideline framework using the existing investment speculation model need to be prescribed by the SEBI so as to avoid uncertainty and the risk that is related to day trading. It is essential to note that if the effect of uncertainty and association of risk is eliminated, then the adverse effect of financial loss and stress could be easily eliminated(as explained in the Figure above). Another recommendation that can be made in this regard is that in order to avoid psychological addiction limitation on timing and usage of day trading need to be imposed by SEBI.
Validation of the research gap from the findings of the percentage analysis
The investors agreeability of the investors towards the appreciable effects of day trading prove that there are both positive and negative effects of day trading among the investors. The agreeability also appears to be a unanimous choice of the investors, if there is no dynamics or changes in the exposure of adverse effects or vulnerability, then there wouldn’t be a high level of agreeability. The high level of agreeability proves that the investor respondents have experienced both positive and negative effects of day trading, thus proving that there are dynamics in vulnerability of investors in day trading contributed by different independent factors.
Independencies of investment patterns towards the appreciable effects of day trading experienced by investors
In order to address the titled issue and find out a relevant answer, this model equation viz Appreciable Effect(Constant) = f Value(related independent varible1* related independent varible2* related independent varible3)+ standard error is framed. The appreciable effect is based on the f value of total multiplier variable of used 3 dependent variables along totaled with standard error which is influenced other undeterminable factors.
It is inferred that the positive effect of making greater profit is based on Frequency, number of stocks invested and Annual income as p value is 0.031 which is less than 0.05 making it clear that there is statistical correlation between the said 3 independent variables and making greater profit. It can be inferred that an individual investor ability to cherish the positive effect of making of greater profit is dependent on the fact that the investors who have higher frequency of invested with higher number of stocks investment along with higher annual income. This means that even if an investor has a greater frequency of investment but if rate of investment and annual income is comparatively less, the individual investor would no be able to make a greater profit. This result helps us to make a recommendation that the lesser rate investors and investors with less annual income need to be protected by SEBI by schemes and measures for greater protection. The same inference applies in the case of lesser tax implication, over seas investment and lesser tax implication.
Coming to the effect of stress and psychological addiction is based on Frequency, number of stocks invested and Gender. Women investors with greater frequency and higher number of investments are likely to endure greater stress compared to the male investors. At the same time when compared to the fact of psychological addiction it is just the opposite the male investors are psychologically addicted compared to female population.
The effects of day trading on investors among different demography
Since the independent variables contain more than 2 groups and also because the data is not of a parametric distribution, one way anova between the effects of day trading on investors among different independent variables is done in order to find out if there is a correlation between the independent and dependent variables wherein it can been seen that the p value between positive effect of making a higher profit in a single day and number of stocks invested per day is 0.035 which is less than 0.05 which means that there is a statistical difference and correlation between positive effect of making a higher profit in a single day and number of stocks at the level of 95 percent significance. From this result it can be inferred that the individuals who invest in higher number of stocks tend to gain more profit in a single day when compared to the individuals investing lesser number of stocks. At the same time when the positive effect of making higher profit is compared with variable of frequency, the p value is 0.023 which is less than 0.05 which means that there is a statistical difference and correlation between positive effect of making a higher profit in a single day and frequency at the level of 95 percent significance.
This result helps us understand that investors who invest in stocks by day trading frequently are able to make greater profit when compared to investors who invest reluctantly or on the basis of their convivence. In this being the inference, the recommendation that can be given is that investigative methods need to be adapted by the SEBI to find out the reasons for reluctance in investment. If the reluctance is based on annual income, then in that case awareness on lesser rate investment need to be carried out by SEBI.
It is seen that the p value between the positive effect of ability to get back the money invested in the same day and experience is 0.032 which is less than 0.05, thus making it clear that there is statistical correlation and difference between the said variable at the level of 95 percent significance. These results mean that the investors with greater experience are able to get back the money invested on the same day. Even though the majority of the individuals are able get back the invested amount on the same day, the effect of getting back the invested amount on the same day is primarily based on an investor experience. This is primarily because of the skill and expertise learnt by the mode of experience. Therefore, it is recommended that the orientation programs on day trading and investment guidance for fresh investors in the market.
Conclusion
Based on the above understanding done in order to find out the vulnerability of day traders and to ascertain if only a particular group is been benefited by day trading, the statistical analysis helps us infer that the the investors with greater experience are able to get back the money invested on the same day. Even though the majority of the individuals are able get back the invested amount on the same day, the effect of getting back the invested amount on the same day is primarily based on an investor experience. The study results further show that understand that investors who invest in stocks by day trading frequently are able to make greater profit when compared to investors who invest reluctantly or on the basis of their convivence. From statistical findings it is found out that positive effect of making of greater profit is dependent on the fact that the investors who have higher frequency of invested with higher number of stocks investment along with higher annual income. This means that even if an investor has a greater frequency of investment but if rate of investment and annual income is comparatively less, the individual investor would not be able to make a greater profit. Therefore an holistic extrapolation that there are dynamics in the vulnerability of investors in day trading under Indian stock market. Therefore, it could be concluded that the vulnerability of a day trader in a stock market is based on interdependent influence of 2 main combinations of investor investment pattern namely Frequency, number of stocks invested and Annual income and the other being Frequency, number of stocks invested and gender.
Authored by
Leelesh Sundaram B
Advocate, High court of Madras
Senior Associate, Nathan and Associates
