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Day Trading

Posted by anandrr on December 19, 2007

Just like the big boom in the US in the 90s, cheap money and a booming stock market and online trading websites have combined to create a boom in day trading in India. Uncles, mothers, grandparents: everybody is in on it. Gardeners want tips on which stocks to buy, people read the stocks page for entertainment, workers spend more time gazing at their trading screens than their actual work, some people quit work altogether and buy and sell at Internet terminals all day long. Of course, I have little doubt about how it will all end up. They all end the same way. But the most interesting thing to me about all this is how the brokerages are actively encouraging day trading. Here’s the sample brokerage rate sheet for an online brokerage:

Brokerage fee for sale/purchase: 0.75%

Brokerage fee for purchase if sold the same day: 0.4%

There’s an old reason behind all this, the settlement problem. Shares that are bought aren’t actually delivered right away. It takes up to a day to get delivered. Selling them on the same day saves the brokerage the trouble of having the shares delivered, and they’re quite happy to pass the savings on. But you can see how this encourages people to do exactly the opposite of how they should be acting.

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