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Zerodha co-founder Nitin Kamat has once again given a big message on trading habits. He says that frequent trading reduces the earning potential of retail investors even more. Kamat clearly said that more activity does not guarantee better returns but increases the risk of the account becoming empty.
New Delhi. Nitin Kamath, co-founder and CEO of Zerodha, has said that most retail investors who make frequent trades themselves reduce their profit potential. Posting on This simply means that investors trade on Zerodha with approximately 75 percent less than their capital, which reduces their chances of loss. According to Kamath, excessive trading is often associated with weak results.
The most active traders face the most risk.
Kamath clearly said that ‘more activity does not mean better returns’ rather it often leads to loss of the investor’s entire account. He said that with a few exceptions, increased trading activity tends to be a sign of weak performance. Kamath believes that frequent trading promotes emotional decisions, haste and wrong timing, which continuously reduces the chances of success for retail investors.
Emphasis on investor protection more than commission
Kamath says Zerodha does not encourage practices that drive high volumes, even though doing so can increase brokerage earnings in the short-term. He said that the Zerodha app neither encourages fast trading through push notifications nor shows feeds like ‘trending stocks’ or ‘most traded F&O’. On the upside, there are many features that reduce user activity, but strengthen investor discipline. Kamath also told that the company’s employees are not given any incentive for increasing brokerage revenue.
Pressure on the industry, but Zerodha sticks to its policy
According to Kamath, the entire industry is under huge pressure of technology and design patterns that encourage trading. Many brokers push clients to be constantly active in order to increase short-term earnings. However, Zerodha has been maintaining distance from this trend for a long time. Kamath says that it is challenging to stay away from such practices, but the company’s focus since the beginning has been to guide investors towards safe and sustainable success. According to him, less trading gives better results for retail investors in the long run.
