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Research Arcle
Journal of Advanced Research in Accounng and Finance Management
Copyright (c) 2024: Author(s). Published by Advanced Research Publicaons
Journal of Advanced Research in Accounting and Finance Management
Volume 6, Issue 1 - 2024, Pg. No. 41-49
Peer Reviewed Journal
INFO ABSTRACT
Corresponding Author:
Memon Gulammustufa, L.J. Institute of
Management Studies, LJ University.
E-mail Id:
mustufamemon1911@gmail.com
Orcid Id:
hps://orcid.org/0009-0000-2143-368X
How to cite this arcle:
Rajput S, Gulammustufa M, Vidani J. Why 90%
of Stock Market Traders are in Loss?. J Adv Res
Acct Fin Mgmt 2024; 6(1): 41-49.
Date of Submission: 2024-01-17
Date of Acceptance: 2024-02-23
Why 90% of Stock Market Traders are in Loss?
Saheelsingh Rajput1, 2, 3
1,2MBA, L.J. Instute of Management Studies, LJ University.
3Assistant professor, LJ University.
This secondary study aims to invesgate the widely held belief that a
sizable poron, approximately 90%, of stock market traders incur losses.
By carefully going over a variety of books, nancial statements, and
market research, this study seeks to clarify the accuracy of the frequently
referenced gure and explore the complex variables that could lead
to those results. Our study includes a thorough examinaon of the
psychological, behavioral, and market-related factors that inuence
traders’ protability. We examine how psychological elements like
fear, greed, and overcondence aect judgment as well as the part
played by behavioral biases that could steer traders toward less-
than-ideal taccs, all based on empirical data and well-established
theories. Simultaneously, the research looks at market dynamics, such
as volality, liquidity, and unancipated events, in order to idenfy
outside factors aecng trade results. The goal of this research is to
provide a comprehensive explanaon of the reported high loss rate
among stock market traders by combining available knowledge. It also
aims to provide insights into possible methods for reducing risk, beer
decision-making, and raising overall trading success.
Keywords: Stock Market, Traders, Financial Statements,
Psychological, High Loss, Trade
Introduction
The world of nancial trading has aracted a lot of interest
lately, drawing people from a variety of backgrounds
with the prospect of substanal earnings and nancial
independence. But despite this aracon, there’s a brutal
fact: a signicant percentage of traders lose money all
the me. A startling 90% of traders end up losing money,
even with access to advanced trading tools, thorough
market research, and professional guidance. This occurrence
movates an invesgaon into the underlying causes of
the dicules faced by the majority of traders and raises
important issues regarding the factors contribung to such
high failure rates.
Comprehending the underlying reasons behind traders’
losses is vital not just for individual investors looking
to improve their trading taccs but also for nancial
organisaons, decision-makers, and scholars trying to
advance investor safety and market stability. This study
explores this topic in great detail in an eort to clarify the
nuances around the high failure rates in trading. This study
intends to shed light on the psychological, behavioural, and
market-related variables that contribute to the widespread
issue of traders suering losses by analysing exisng
literature, empirical studies, and market trends.
Literature Review
The occurrence of traders suering from persistent losses
has long piqued the curiosity of Behavioral economists
and scholars studying nance. Numerous research studies
have aempted to pinpoint and analyze the causes of this
tendency, oering insighul informaon on the dicules
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J Adv Res Acct Fin Mgmt 2024; 6(1)
faced by traders. The literature that has already been
wrien has produced a number of important themes that
highlight the problem’s complexity.
•
Psychological Biases and Decision-Making: The impact
of cognive biases, including overcondence, loss
aversion, and herding behavior, on trading decisions
has been well studied in the literature on behavioral
nance. These prejudices frequently cause traders to
make illogical decisions, straying from the best trading
methods and, as a result, losing money (Barberis &
Thaler, 2003; Kahneman & Tversky, 1979).
•
Lack of Risk Management: Successful risk management
is essenal to trading success. In volale market
condions, traders frequently overlook conducng
an appropriate risk assessment and failing to put
appropriate risk management strategies into pracce,
which can result in signicant losses (Chen, Da, &
Zhao, 2011).
•
Market Volality and Unexpected Events: Trading
results can be greatly impacted by abrupt changes
in the market and unforeseen circumstances, such
as natural disasters, geopolical unrest, or economic
crises. Traders that are ill-prepared to handle these
errac circumstances frequently suer signicant
losses (Baur & Lucey, 2010).
•
Inadequate Trading Educaon and Skills: People who
lack the necessary educaon and trading experse
may nd it dicult to evaluate nancial indicaons,
assess market trends, and place protable transacons.
Traders who lack a rm understanding of trading
concepts are more likely to make expensive errors
(Caginalp & Balenovich, 1999).
• Role of Trading Plaorms and Brokers: The success
of traders is signicantly inuenced by the layout and
operaon of trading plaorms as well as the honesty
of brokers. Untrustworthy plaorms and dishonest
brokers may result in unfair trading acvies that cause
traders to lose money (Biais, Glosten, & Spa, 2005).
This literature study underscores the intricacy of the maer
and underscores the necessity of obtaining a thorough
comprehension of the elements that lead to the elevated
failure rates among traders. The objecve of this research
is to oer signicant insights that can enable traders to
foster a more secure and sustainable trading environment
by addressing these concerns and suggesng soluons to
lessen their inuence.
Methodology
•
Research Design: Look at the causes of the large num-
ber of stock market players who are losing money.
survey and case studies in addion to a meta-analysis
of the body of current literature. Examine past data
and carry out surveys for a predetermined amount of
me (e.g., 5 years).
•
Data Sources and Analysis: Collect informaon on
stock market trading from credible publicaons, books,
and scholarly journals. Financial databases can be
used to analyze historical stock market data. Gather
primary data by interviewing traders and using surveys.
Analyze the actual cases of protable and unsuccessful
traders in detail.
•
Ethical Consideraons: Make sure parcipants un-
derstand the nature and goal of the study completely.
Maintain the privacy of those who parcipate in case
studies and surveys. Evaluate the data imparally and
unbiasedly, avoiding conicts of interest. Put safe
procedures in place to prevent unwanted access to
the data that has been gathered.
•
Data Collecon and Analysis: Systemacally examine
and evaluate pernent material to lay the ground-
work for the invesgaon. Create a well-organized
survey to collect informaon from traders on both a
quantave and qualitave level. To acquire an in-
depth understanding of traders’ experiences, conduct
semi-structured interviews. Choose a variety of cases
to give a thorough grasp of dierent trading situaons.
Analyze survey data using stascal techniques to nd
trends and correlaons. When analyzing qualitave
informaon from case studies and interviews, use
themac analysis.
Common Mistakes in Stock Market
•
Lack of Educaon and Research: Making decisions
based on trading without adequate research and un-
derstanding might be detrimental. Without a thor-
ough understanding of nancial instruments, market
dynamics, and investment techniques, traders may
enter the market.
•
Emoonal Decision-Making: When emoons like fear
or greed take control over investment decisions, it
can lead to rash conclusions. Emoons can inuence
judgments, causing one to buy high, sell low, or cling
onto losing posions for longer than is prudent.
•
Poor Risk Management: Traders run a serious nancial
risk when appropriate risk management techniques
are not followed. Because traders could invest more
than they can aord to lose, poor risk management
can result in signicant losses.
•
Overtrading: Buying and selling too much might raise
transacon costs and lower total returns. Impaence or
the desire for rapid prots frequently lead to overtrad-
ing, which negavely impacts porolio performance.
•
Lack of a Trading Plan: Making haphazard decisions is
more likely when trading without a clear strategy or
plan. A trading plan oers a road map for protable
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J Adv Res Acct Fin Mgmt 2024; 6(1)
trading by helping to establish precise objecves, risk
tolerance, and entry and exit locaons.
Psychological Factors in Trading Loss
• Overcondence Bias: Odean (1998) recognized over-
condence bias as a typical cognive bias in which
traders tend to overesmate their own skills and
knowledge. This unfounded condence can result in
overtrading, poor judgment, and eventually nancial
losses.
• Loss Aversion and Fear of Missing Out (FOMO): Ac-
cording to Kumar and Lee (2006), traders frequently
display loss aversion, a psychological condion in
which one feels the agony of losses more keenly than
the joy of wins. This aversion may cause hesitaon
when it comes to reducing losses, which can prolong
downturns. Furthermore, as traders follow trends,
the Fear of Missing Out (FOMO) can cause impulsive
decision-making that results in less-than-ideal deals
and heightened suscepbility to losses.
•
Representaveness Heurisc: Tversky and Kahneman
(1974) discussed the representaveness heurisc,
which involves making decisions based on perceived
similarity to a prototype. This heurisc could cause
traders to overemphasize historical market trends,
which could lead to poor trading decisions and losses.
•
Greed and Overtrading: The insaable thirst for more,
or greed, is a major factor in trading. Barber and Ode
-
an (2000) examined the problem of overtrading by
investors who give in to the lure of rapid returns.
Greed-driven overtrading can lead to rash choices,
exorbitant risk-taking, and eventually nancial losses.
Lack of a Trading Plan and Strategy
Certainly, let’s focus on the lack of a trading plan and
strategy as a contribung factor to losses among stock
market traders:
Absence of Clear Goals
Traders without definite objectives frequently find
themselves circling the stock market aimlessly. When
there are no clear, quanable goals, it might cause
uncertainty and rash decisions. Traders can beer manage
risks, priorize tasks, and stay focused on their nancial
goals by having clear goals.
More vulnerability to trading on emoon. absence of
a methodical approach to making decisions. Aligning
trading acvity with more general nancial goals is dicult.
Dicules in assessing and monitoring advancement.
Establish both short- and long-term nancial objecves.
Clearly dene the parameters for trading entry and exit
locaons. Review and reevaluate goals on a regular basis
in light of market condions. Include risk management
techniques that are in line with your overarching goals.
Failure to Analyze and Plan
Traders who disregard careful planning and analysis may
nd themselves ill-prepared to handle the intricacies of the
stock market. Traders may be exposed to greater risks and
possible losses if they make judgments without properly
analyzing the market and creang a strategic strategy.
Incapacity to change course in the market. increased
suscepbility to unancipated circumstances and market
uctuaons. Finding lucrave trading possibilies can be
dicult. Absence of a methodical approach to making
decisions. For thorough market insights, combine technical
and fundamental analysis. Create a trading strategy with
precise entry and exit points. Update the plan oen in
response to changing market condions. Keep yourself
updated on world events and economic factors that aect
the market.
Trading Without Discipline
Trading without discipline is when one follows their trading
strategies erracally out of emoon or hasty judgment.
Discipline deciencies can cause volale trading behavior,
which erodes the consistency needed for sustained success
in the stock market. Greater vulnerability to emoonal
biases like greed, fear, and other feelings. errac obedience
to risk-reducon taccs. Diculty keeping up a methodical
trading strategy. Greater chance of basing judgments on
transient changes in the market.
Create a set of guidelines for trading and adhere to them
constantly. Use risk management techniques to keep losses
under control. Develop emoonal fortude by being self-
aware and vigilant. To strengthen discipline, monitor and
assess trading results on a regular basis. These elements
emphasize how crucial it is to have specic objecves, carry
out in-depth planning and study, and uphold discipline in
order to succeed in stock market trading. By incorporang
these ideas into one’s trading strategy, one can lower their
chance of nancial loss and increase overall performance.
Inadequate Risk Management
Position Sizing
A crucial component of risk management for traders and
investors is posion sizing. It entails guring out how
much money to put into a specic trade or investment.
Appropriate posion sizing reduces risk and shields against
large losses. There are numerous ways to determine
posion size, such as:
•
Fixed Dollar Amount: Regardless of the risk or volality
of the stock, a certain amount of capital is allocated
to each trade.
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• Porolio Percentage: Assigning a specic poron of
the overall value of the porolio to every trade. This
technique modies posion size in response to changes
in the porolio.
•
Volality-Based Sizing: Modifying the size of a posion
in accordance with the asset’s volality. A smaller
position size to accommodate for greater price
uctuaons may result from more volality.
Stop Loss Orders
Stop loss orders are instruments of risk management
employed to restrict possible losses on a transacon. To
stop more losses, traders specify a preset price at which
an item will be automacally sold. Crucial elements of stop
loss orders consist of:
•
Goal: Preserving capital by shielding it from large losses
in the event that the market turns against one’s wishes.
•
Categories: Fixed Dollar Stop Loss: Determining the
highest dollar amount that can be lost on a trade. The
percentage-based stop loss method involves calculang
the stop loss threshold in relaon to the entry price.
•
Trailing Stops: Modifying the stop loss order when the
trader’s posion is strengthened by price movement.
This minimizes possible losses while enabling the
capture of gains.
• Assured Terminaon Loss: In the event that slippage
occurs due to market condions, certain brokers
guarantee stop loss orders, guaranteeing that the
deal is concluded at the agreed upon price.
Diversification
To lower risk, diversicaon entails distribung investments
among several asset classes or types. Important elements
of diversicaon consist of:
•
Asset Classes: Distribung investments among several
asset classes, including commodies, equies, bonds,
and real estate.
•
Industry and Sector Diversicaon: To lessen the
effects of unfavorable occurrences impacting a
particular industry or sector, avoid being overly
concentrated in that sector.
•
Geographic diversicaon: Making investments across
a range of geographical areas to lessen the eects of
local economic downturns.
Portfolio Management
Opmizing returns and controlling risk need eecve
porolio management. Important facets of managing a
porolio consist of:
•
The Risk-Return Trade-o: striking a balance between
the necessity to properly manage risk and the desire
for larger prots.
•
Rebalancing: Modulang the porolio on a regular
basis to preserve the intended risk prole and asset
allocaon.
•
Monitoring and Analysis: Comparing the performance
of each asset and the porolio as a whole on a regular
basis to pre-established benchmarks.
Hedging
Using nancial instruments to reduce the risk of unfavorable
market price swings is known as hedging. Investors may
be exposed to a number of hazards if they fail to hedge:
• Market Risk: Being exposed to changes in the market
that may result in investment losses
• Currency Risk: Variaons in exchange rates can have
an eect on prots on foreign investments.
•
Interest Rate Risk: The value of fixed-income
investments may uctuate in response to changes in
interest rates.
Protecting Investments
•
Insurance Strategies: Invesng in securies or opons
to guard against parcular risks; for example, buying
put opons to protect against a drop in stock values.
•
Orders to Stop Loss: Pung stop loss orders into eect
to reduce possible investment losses.
•
Diversification: Spreading risk over a variety of
assets and lowering exposure to the underwhelming
performance of a single investment through appropriate
porolio diversicaon.
To summaries, traders and investors must control risk
by using stop loss orders, diversifying their holdings,
and carefully managing their porolios. A thorough risk
management plan is essenal since failing to hedge and
safeguard investments can expose porolios to a variety
of hazards.
Market Volatility and Unforeseen Events
Black Swan Events
A term coined by author Nassim Nicholas Taleb, “Black
Swan” events are unancipated, uncommon, and extremely
powerful events that have a signicant and pervasive
eect on nancial markets, economies, and society. These
occurrences are disnguished by their extraordinary
rarity, unpredictable nature, and the profound eects
they produce.
•
Unpredictability: By denion, Black Swan occurrences
are hard or impossible to predict with convenonal
forecasng techniques. They frequently take people
and organizaons o guard.
•
Dramac Eect: Financial markets are signicantly
disrupted quickly and severely by these catastrophes.
Numerous economic sectors are aected by their
eects.
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•
Retrospective Predictability: Although these
occurrences are difficult to foresee beforehand,
individuals frequently try to make sense of them
aer the fact, giving the impression that they were
predictable in some way.
•
Diverse Causes: Black Swan occurrences can be brought
on by a number of things, such as abrupt changes in
the market, natural disasters, geopolical crises, and
technical malfuncons.
Examples of Black Swan Events
•
Global Financial Crisis (2007–2008): The subprime
mortgage crisis led to the collapse of signicant -
nancial instuons, which in turn caused a severe
downturn in the world economy.
•
The 2019–2020 COVID-19 Pandemic: The quick spread
of the coronavirus caused extraordinary market volal-
ity, economic shutdowns, and a global health disaster.
The rapid spread of the coronavirus led to a global
health crisis, economic shutdowns, and unprecedented
market volality.
•
The 2001 September 11 Aacks: Wide-ranging reper-
cussions from the terrorist aacks in the US included
major geopolical and economic shis.
Economic Factors
• Interest Rates: Variaons in interest rates can aect
the cost of borrowing, investment, and spending, all
of which have an eect on the state of the economy.
• Rates of inaon: Unexpected or high inaon can
destabilize the economy by reducing purchasing power.
•
Unemployment Rates: High unemployment rates can
be an indicator of a struggling economy and have an
impact on consumer condence and expenditure.
•
Global Economic Condions: Developments in the
world’s largest economies can have a ripple impact
on the overall state of the global economy.
Political Factors
•
Policy Changes: Modifications to government
regulaons or tax laws may have an eect on the
nancial markets and companies.
•
Internaonal Events: Uncertainty can be caused by
polical unrest, hoslies, or diplomac dicules,
which can lower investor condence.
•
Trade Policies: Modicaons to trade agreements and
proteconist acons may have an impact on global
trade and nancial circumstances.
•
Government Stability: Investor views and market
condence can be impacted by a government’s stability
and leadership.
Market Manipulation
The deliberate aempts to obstruct the free and equitable
funconing of nancial markets for one’s own benet
are referred to as market manipulaon. It can take many
dierent forms, and authories acvely seek to detect and
stop these kinds of acons.
Key Forms of Market Manipulation
•
Price Rigging: The deliberate manipulaon of a se-
curity’s or market’s price in order to convey a false
impression.
• Insider Transacons: Trading securies in a way that
gives individuals with access to important, non-public
informaon an unfair advantage.
•
Spoong: Producing a false impression of market
supply or demand by placing sizable purchase or sell
orders with the intenon of cancelling them before
they are executed.
• Pump and dump: Increasing the price of a stock by
promoon, then dumping holdings at the inated
amount.
Regulatory Measures
• Securies and Exchange Commission (SEC): The SEC
keeps a close eye on and looks into incidents of market
manipulaon in the US.
•
The FCA, or Financial Conduct Authority: Similar dues
are carried out by the FCA in the UK in detecng and
stopping market abuse.
•
Commodity Futures Trading Commission (CFTC):
The CFTC aims to stop manipulave taccs and regu-
lates the commodity futures markets. Exchanges and
banking establishments employ advanced monitoring
mechanisms to idenfy and avert instances of market
manipulaon.
To effectively traverse the intricacies of financial
markets and foster equitable and transparent trading
environments, investors, regulators, and policymakers
must possess a comprehensive understanding of market
manipulaon, black swan events, and economic and
polical consideraons.
Influence of Media And Social Signals
Herd Mentality
Herd mentality is the term used to describe people’s
propensity to act in accordance with the decisions or
acons of a sizable group, frequently without giving
the underlying reasoning any thought. Herd mentality
can result in collecve behavior in the stock market, as
investors follow the lead of others instead of doing their
own research.
Characteristics
•
Fear of Mission Out (FOMO): Investors may choose to
join the herd even when it deviates from their beer
judgement out of a fear of losing out on possible gains.
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•
Uncrical Imitaon: Investors may imitate other peo
-
ple’s acons without carefully weighing the dangers
or the informaon that is already accessible.
Impact on Stock Markets
•
Market Trends can be amplied by herd behavior,
which can cause inated price movements in both
upward and downward direcons.
• Enhanced Volality: Market volality may be height-
ened by broad, impulsive reacons.
Examples
•
Stock Bubbles: The late 1990s dot-com bubble is a
prime example of herd mentality in acon, as investors
ocked to buy internet-related stocks without doing
due diligence, seng the stage for a subsequent crash.
News and Social Media Hype
•
Denion: Investor senment and market paerns
can be greatly inuenced by news and social media.
The term “hype” describes the inated adversing of
a stock or investment via dramac news coverage or
social media posts.
Characteristics
•
Sensaonalized Reporng: When news sources over-
state good or negave informaon, the market may
overreact.
•
Viral Social Media Trends: On social media plaorms,
rumors and informaon can spread swily and sway
a sizable number of investors.
Impact on Stock Markets
•
Short-Term Price Swings: Stock values may experience
brief increases or decreases in response to fervent
news or social media trends.
•
Enhanced Trading Acvity: Informaon fueled by hype
has the potenal to enhance trading acvity, frequently
on a speculave rather than a fundamental basis.
Examples
• Tesla and social media: CEO Elon Musk’s tweets and
social media posts have been known to impact Tesla’s
stock, causing both posive and negave price swings.
Pump and Dump Schemes
•
Denion: Pump and dump schemes are decepve
business pracces in which members of the orchestrator
group sell their shares at the inated price, causing
the stock to collapse, aer the value of the stock has
been arcially boosted through misleading or false
asserons (pumping).
Characteristics
• False Informaon: In an eort to draw in investors,
criminals disseminate inaccurate or misleading infor-
maon regarding a stock’s future.
•
Coordinated Trading: By coordinang their eorts,
manipulators fabricate a false sense of market demand,
so boosng the price of stocks.
Impact on Stock Markets
•
Investor Losses: When the stock inevitably crash-
es, investors who bought into the arcially inated
stock prices during the pump phase may suer large
nancial losses.
•
Market Manipulaon: Investor trust is undermined
and market manipulaon is facilitated by pump and
dump strategies.
Examples
•
Wolf of Wall Street: Jordan Belfort used pump and
dump methods to manipulate stock prices; the movie
“The Wolf of Wall Street” is based on his true story. In
order to preserve the integrity of the nancial markets,
regulatory authories seek to idenfy and stop mar-
ket manipulaon. Investors must comprehend these
occurrences in order to make educated decisions.
Institutional Advantages
There are several common characteriscs that contribute
to the dicules faced by many retail traders, even though
parcular numbers can vary and the reasons for individual
traders’ success or failure in the stock market are complex.
Given the complexity and mulplicity of elements that
can aect the stock market’s dynamics, it is imperave
that this topic be approached from a nuanced standpoint.
These are a few instuonal benets that instuonal
investors frequently have, which could provide dicules
for regular traders.
Of course, let’s examine the drawbacks that retail traders
have, with a parcular emphasis on two issues: Insider
Information and High-Frequency Trading (HFT) and
Algorithms.
High-Frequency Trading and Algorithms
•
Speed Disadvantage: High-frequency trading necessi-
tates the highly rapid execuon of numerous orders.
Retail traders are signicantly slower than instuonal
investors and hedge funds since they frequently have
access to low-latency connecons and state-of-the-
art technology. For retail traders, this may mean less
favorable prices and delayed order execuon.
•
Complexity and Sophiscaon: Using sophiscated
mathemacal models and arcial intelligence, HFT
algorithms are both intelligent and complex. It may
be dicult for retail traders to eecvely compete in
a market that is changing quickly since they may not
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have the same degree of experience or access to this
technology.
•
Market Impact: Abrupt price changes and market
volality may be caused by high-frequency trading.
It may be challenging for retail traders to understand
and react to these quick changes, which increases risk
and potenal losses.
•
Front Running: Using informaon about impending
trades to their advantage, traders engage in front
running as one of the HFT taccs. Because instuonal
investors have faster access to market data and can
execute trades before retail orders are fullled, retail
traders are vulnerable to being front-run.
Insider Information
• Unequal Access to Informaon: Material non-public
informaon that has the potenal to materially aect
a stock’s value is referred to as insider informaon.
Because of their deep es to rms, research skills, and
industry connecons, instuonal investors might
have superior access to insider informaon. The fact
that retail traders have less access to such exclusive
informaon puts them at a disadvantage.
• Legal Repercussions: Trading on insider informaon
is prohibited and has a high risk of nes and jail me.
Retail traders are more suscepble to inadvertent
infracons or false informaon because they are un-
likely to have the same legal resources or protecons
as instuonal investors.
•
Market Distorons: Instuonal investors’ use of
insider knowledge can skew the eciency of the mar-
ket. When market prices are inuenced by non-public
informaon, retail traders—who oen rely on publicly
available informaon—may nd it dicult to make
well-informed judgements.
•
Regulatory Dicules: Regulators keep a close eye
on insider trading laws and vigorously enforce them.
Although the goal of these restricons is to maintain
fair and transparent markets, individual traders may
nd it more dicult to spot and report instances of
insider trading than instuonal investors who have
access to greater resources.
Retail traders must embrace risk management techniques
including careful study, diversicaon, and keeping up with
market developments in order to migate these risks. A
more equal playing eld for all market parcipants can
also be achieved by supporng fair market pracces and
regulatory openness.
Educational and Training Gaps
• Lack of Financial Educaon: A lot of traders start out
in the stock market with no knowledge of invesng
strategies, market dynamics, or nancial instruments.
•
Insucient Knowledge about Market Analysis: Trad-
ers’ capacity to make wise investment selecons is
frequently hampered by their inability to perform
fundamental and technical analysis.
•
Limited Understanding of Risk Management: Risk
management is an essenal component of trading
that is frequently disregarded, which can result in
large losses.
•
Absence of Trading Strategies: It’s possible for traders
to operate inconsistently and make errac decisions
since they don’t have clear trading methods.
•
Behavioral Biases and Emoonal Decision-Making:
Behavioral biases frequently cause traders to make
emoonal decisions that stray from logical trading
techniques.
Regulatory and Ethical Factors
•
Insucient Regulatory Oversight: Inadequate reg-
ulatory supervision may leave traders vulnerable to
decepon and manipulaon of the market, which can
result in losses.
•
Lack of Investor Protecon Measures: Inadequate
protecons and unethical conduct could expose deal-
ers due to incomplete investor protecon measures.
•
Ethical Concerns in Financial Advice: Financial advisors
that act unethically could mislead traders, resulng in
bad investments and eventual losses.
•
Inadequate Disclosure Pracces: Inadequate disclosure
procedures and a lack of openness can keep traders
from making wise invesng choices.
•
Market Manipulaon and Insider Trading: Market
manipulaon and insider trading are examples of
unethical behavior that skews market condions and
hurts traders.
Conclusion
Summary of Reasons for Trading Losses
• Market Complexity and Volality: Trading losses are
mostly caused by the nancial markets’ sophiscated
structure and unpredictable nature.
•
Behavioral Biases: Research highlights how biases
like herding and overcondence can aect judgement
and provide less-than-ideal results. Examples of these
studies are Barber and Odean (2000).
•
Ecient Market Dynamics: The meta-analysis by Fama
and French (2010) emphasises the diculty of conn-
uously beang the market because of its eciency.
Implications for Traders and Investors
Awareness of Behavioral Biases: Traders should be aware
of the psychological inuences on their decisions and take
steps to reduce any biases that may result in losses.
Adaptaon to Market Dynamics: Aware of the eecve-
48
Rajput S et al.
J Adv Res Acct Fin Mgmt 2024; 6(1)
ness of markets, investors may reevaluate their approach-
es, placing a stronger emphasis on risk management and
long-term planning.
Future Research and Strategies for Improvement:
Behavioral Finance Research: Future research endeavors
may concentrate more extensively on behavioral facets,
invesgang strategies to reduce paralies and improve
judgement.
Innovave Strategies: Research may concentrate on cre-
ang cung-edge trading plans that adjust to changing
market condions and may make use of data analycs
and technology.
Educaon and Training: Eorts to instruct traders on risk
management, the psychological aspects of trading, and
the intricacies of the market may enhance performance.
By talking about these issues, traders and investors can
learn more about the dicules they encounter and in-
vesgate methods for more knowledgeable and resilient
market involvement.
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