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Have you ever tried trading or investing money, whether for the long term or intraday, in the equity market or commodity market? If yes, my next question is: did you make money out of it? The question might be an awkward one, but let me tell you the harsh reality about trading and investing — almost 90% of retail traders who are into trading never make money.
The next question you might ask is: Why do 90% of traders lose money? Who are the other 10% who are actually making money? What are their strategies? What are they doing differently compared to others?
Let’s break this down very clearly.
Why do 90% of traders lose money?
- Unrealistic Expectations
Trading is not a scheme where people get rich overnight. It is a mix of calculated risk, a systematic approach, and a patient mindset. One must not act based on market emotions. Consistency and perseverance are essential if you truly want to earn money in the long term.
- Psychological Factors
I have seen many people investing in stocks or commodities due to the fear of missing out (FOMO). One of the best examples was the recent surge in gold and silver prices. Many people invested due to FOMO, but a sudden crash led to huge losses.
- Lack of Proper Financial Management
You must have a stable source of income before investing money. Whether salaried, self-employed, or running a business, consistency in income is important. Investing should also be done regularly and consistently in order to see results.
The 50-30-20 Rule
A very simple formula to manage your income and finances:
50% of your salary should go towards daily needs such as rent, food, accommodation, travel expenses, healthcare, and groceries.
30% should go towards wants, such as travel, exploring new places, vacations, shopping, gym fees, etc.
The remaining 20% should go into savings. These savings should not be invested in just one place; they should be diversified according to individual financial goals and risk appetite.
Strategies Followed by the 10% of Retail Investors Who Actually Make Money
- Preference for Long-Term Gains Over Short-Term Profits
They invest for 5–10 years in potential companies, not those built purely on hype. Compounding has great value when investments are held for the long term. For example, an investment of ₹10,000 in companies like HDFC or Infosys years ago would have yielded significant returns.
- Focus on Fundamentally Strong Companies
They invest in companies with strong financial performance, growth potential, and a solid business model. These companies often cater to a large customer base and are backed by strong management and institutional confidence.
- Risk Management
They diversify their portfolio and never put all their money into one stock or sector. They invest across multiple industries and only invest surplus money — not their emergency funds.
- Avoid Emotional Decisions
90% of investors lose money due to fear (selling during a slight market crash) or greed (buying due to hype or FOMO). Profitable investors do not get carried away by market emotions. They invest based on facts and figures. A pragmatic approach is always better than an emotional one.
- Regular SIP Investments
Many investors build wealth through regular SIPs, which generate steady returns over time. Selecting the right SIP based on one’s financial goals and savings capacity is a wise approach.
For beginners, a practical approach could be allocating 70% to mutual fund SIPs, 20% to fundamentally strong companies, and 10% for experimentation and learning.
Overall, market risks do play a vital role, especially global factors such as tariffs, wars, and economic instability. However, strong fundamentals help reduce long-term losses. Patience and a focus on long-term growth over short-term gains are essential for success in the market.
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