Of late, we have come across many emails that are seeking day trading tips. We are shocked to see even the pensioners trying their hands on the market. Our drivers do trade nowadays. We don't mind these guys participating in the market. But for sure not as a day trader.

Recently a gentleman who is practicing medicine approached us for investment consulting. He stated that he would either go for investments or some other thing. He started saying, "How is the idea of buying a stock at Rs 100 in the morning and then selling at Rs 103 in the afternoon and making money out of these investments (!)"

For a moment we were in a state of shock. For him day trading was the way of investing. We thought we need to check our basics.

When one says that he should buy a stock at Rs 100 and then sell it in the afternoon at Rs 103, it seems to be great return of 3%. With using leverage this return can be multiplied further. But this is just one side of coin.

Market is said to be a zero sum game. When one person is buying there has to be some other person selling. If you are buying at Rs 100, there is a person who is selling at Rs 100. In the afternoon when you are selling the same stock at Rs 103, there has to be someone at the other end who is buying it at Rs 103. If we assume that the there are only two investors in the market. The other guy must take a loss. And a million dollar question – "How many times you will keep making money and he will keep making losses?"

One may argue that this may not be the case. But globally it is proved that 95% of the day traders make loss in the long term. Day trading is treated to be the most difficult art in the world of investing.

Traders are just not rampant in the market. They are also rampant in the mutual funds. Please check the recent announcements imposing exit loads from most mutual funds. As the markets have dizzy heights, there is a possibility that the smart money will start moving out any time. Also there is huge speculative money that has entered the mutual fund schemes. To control the redemption pressures these exit loads are imposed.

There is an undercurrent in the market that the exit loads are being used to pay the distributors. Now it is up to you if you want to fall pray to all the great advertising campaigns of the mutual funds.

Coming back to the point, if we are really turning traders we have to take a breath and have to understand that there exist a difference in trading and investing.

Disclosure: We are not associated with any fund house as a distributor.
We and our customers do have investments in various mutual funds.