Overtrading is nothing but the users urge to earn more money, reducing the losses or trying to become profitable by placing more buy and sell orders. Although these three terms sound good, overtrading can have some negative consequences apart from a few positive ones. I’ve shared the same in the following paragraphs:
You make more money
As the stock market is the only legitimate business in which you can earn more than 100% of the amount you’ve in your demat account in a day, you can become very rich through this business. If you’re a skilled trader, overtrading will only increase your wealth. Overtrading makes you rich only if you know what you’re doing. If you place orders blindly without understanding what’s happening in the market, you’ll face the wrath of the market.
You pay more brokerage
The brokerage increases exponentially when you overtrade. It is very difficult to control emotions. When you have suffered a loss, you try to become profitable. To do so, you keep placing and squaring off orders. This process continues until the entire amount in your demat account is wiped off. Sometimes, the number of orders goes up to 200. If this happens and you’re not using a zero brokerage demat account, you will have to pay a brokerage of 4000 Rs plus GST. Most stockbroker companies in India charge Rs 20 per order.
Losses will mount
To reduce losses, you keep trading. While placing orders, you may forget that you will be charged brokerage by the platform you’re using. If you’ve suffered a loss, it’s a bad day for you. Instead of closing the broker’s web or desktop application, you keep repeating the same mistake and pile more losses. Some brokers, for example, Zerodha and Dhan have a kill switch option that will disable a particular segment for a day. When you’ve made loss, you should activate the kill switch to avoid losing the entire capital.
You will lose confidence
It doesn’t matter what business you’re doing, when nothing goes in your way, you lose confidence. Everybody is confident when the stock market session starts. At the end of the day, the person who has traded and made money is the winner and the one who has lost money is the loser. The brokers label companies whose closing price was higher than the same of yesterday as winners and those whose price ended lower than yesterday’s closing price as looser. There are only two things in the market – winners and losers. It is very painful to lose a substantial amount of hard-earned money. The confidence of such people is very low.
Profits may turn into losses
This happens with a lot of people. Sometimes, people are not satisfied with the profit they’ve made while trading despite the money they’ve made is satisfactory. Such users try to increase their profit by overtrading. If the market goes in the opposite direction of what the user has anticipated, the profitable position of the user will turn in to losing one. Some people even end their trading session in deep losses.
When will you realize the mistake of overtrading? A few minutes after the stock market closes, you will realize the blunder you’ve made. How to avoid the above situations? Use the kill switch feature, uninstall the mobile trading app, move out of the office/house, or shut down the computer or the laptop.
