Trading and Investing

One small action increased my net profit by 805%

This is a very small change that I brought to my trading. Neither was it change in trading style, nor was it a change in markets I traded in. Read on, the change was very small.

I would typically take many day trades with a stoploss ranging between 0.5% to 1% with a target for 1% to 2%. My Risk-Reward ratio always was 2x or more. For that type of scalping, this was essential. Now see what happened with an accuracy of 45% (Imaginary Trades).

Capital of 50,000 used for Intraday Trading - Imaginary Trades
I made a solid 2.5% gain! Rs. 1,250 gross profit. Now I go on to see my net profit.

Post Brokerage and Taxes:
Where have the profits gone?
A gross profit of Rs. 1,250 becomes just Rs 85 in my account. Eventually, my broker won! If I had made a loss of Rs. 1,250 then my net loss would have been around 2,300 after brokerage! My broker would have still won! Astonishing how I ignored such a small thing but it ate up my entire profits! What was all the analysis put in for then?

What if I had traded with a discount broker?
My net profit is still healthy
If I had gone with a discount broker then my Net profit would still be intact! From Rs 85 to Rs 760! That is a big amount. And imagine it happening daily? I would end up with nothing.

Once the capital increases from 50,000 to 1 Lakh, then the discount broker will still charge the same. But the traditional broker's brokerage will increase too! Infact it will double and still eat my profits. The bigger the capital, the lower your breakeven point and cost with a discount broker.

Moral of the story:
Being a great analyst or a great trader will go in vain if you are unable to keep the profits. Choosing the right broker is necessary for being profitable. I personally used to trade with Motilal Oswal which charged me a very heavy brokerage which then seemed fine. But after shifting to my current broker my brokerage has reduced drastically. Gone are the days when ICICI Direct would charge me Rs 100 per lot for options. I can trade multiple lots for a flat fee. Same with futures and commodities. My breakeven point has reduced to a few ticks. I encourage every trader to think about this. Instead of paying out lakhs as brokerage over time, you can be smart and cut down your brokerage cost and keep that money in your pockets. Open your Zerodha account through us and trade at just Rs 20 per trade and avail other benefits including free account opening, charting software, investment guidance Technical Analysis course, etc.
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