If you have a large trading account and fear that your broker will run away with your money or do trading on your account without your knowledge then you need not fear. The rules by SEBI (Securities and Exchange Board of India) are so strict that the brokers actually fear trading without your permission in your account. The rules governing management of money in brokers account are even stricter.

Small Note: If you are a Future & Option trader you must trade with a discount broker to save money on brokerage. If interested you can click the link below and check if their rates are something you are comfortable with (its only Rs.20/- per order NOT lot – so even for 50 lots order you pay only Rs.20/-). Then you can register yourself:

https://zerodha.com/brokerage-calculator?c=ZMPDIL

You can register here:

https://zerodha.com/open-account?c=ZMPDIL

According to a recent rule any money that is not used in a Demat account needs to be returned to the client. Earlier if you remember the brokers used to keep the money in your trading account. You could have used that money any time you want or leave it idle. But now rules have changed. The money that is not blocked or used for a certain time needs to be returned to the client’s bank account. This is to ensure in case you had left a lot of money with your broker and God-forbid some thing happens to you, all the money that is unused will be refunded.

In many cases family members do not know how much money the bread-winner has kept in the trading account. In earlier cases the whole money was kept with the broker and returned only when the nominee closed the account. The brokers used to keep the interest received on that money and return only the principal. Today they cannot.

In the US the money is not returned but the client gets interest on the money equivalent to a debt mutual fund of US (anywhere from 1-3% in a year). I do not understand why SEBI does not enforce this rule here instead of returning the money. Here in India debt mutual funds make almost 9% in a year. If enforced the money lying idle in Demat account will make more than money in our savings account.

SEBI knows how many clients a broker has, their PAN and other details like which bank account your account is linked to etc. They can find out all transactions done on you account through the broker, like cash deposits and withdrawals. So there is almost NIL chance that any broker can run away with your money.

According to the terms and conditions of SEBI no broker can buy or sell against your wish in any stock or derivative. They may call you, they can ask you to buy a stock because they feel its headed up, but I don’t think if you deny they can go against your wish and buy that stock. It is a totally different story that you allow your broker to trade on your behalf, in that case if there is a loss they will remind you that they had taken your permission.

However I am talking about the popular and big brokers. I have no experience and idea of small brokers who run business from their homes with a couple of computers. These brokers are popular in remote areas, suburbs, village and small towns. My father-in-law had account with one such broker running business from home with one computer, but I never heard of him saying they ever traded against their wish.

If there was a miss-communication, misunderstanding on phone, or a trade done by mistake then that’s a different issue altogether. But as far as I know brokers rarely trade against the wish of their clients. Its a serious issue. SEBI takes it very seriously. If SEBI comes to know of it through complains, their license will be canceled – so they actually fear trading without your permission.

There is a plain logic to it as well. See brokers need a lot of trading to make reasonable money. So if they need to cheat they will trade one everybody’s account. Trading in one or two account against the wish of the client is not going to make them any money. And if they trade against the wish of all of their clients someone might definitely report to SEBI or consumer courts. A few complaints – investigation – and gone – the broker is out of business. So they will fear doing any trade without the knowledge of their client.

In this case I am sure some kind of miss-communication took place. Or probably the trader was not clearly told the risks involved in Futures trading. He might have only told that if you buy a Future you make a lot of money if Nifty goes up. Probably he was never told that if it falls, he will have to pay for the losses.

Remember brokers will never deny a trade. If you ask them, “shall I buy SBI now?” They will never say No. They will always say, “yes buy its a great stock, it will go up very fast.” In 95% of the cases the client gives their consent and the trade is done.

When any broker applies for brokering license they have to a sign terms and conditions under which they keep a lot of money as security with SEBI – on top of that every trade is monitored by NSE, BSE, MCX or any other exchange where the trade takes place. Its near impossible for any broker to fudge accounts or run away with their clients money.

A broking company may declare bankruptcy, refund their customers and close business but the conditions are so difficult that they cannot run away with their clients money. For example no broker accepts cash – you have to do an online transfer or pay by check. Similarly they do not pay you by cash. So 100% transactions are accounted for and all records can be produced when demanded.

Sometimes some broker may close business but they may either close your account or shift your shares to some other broker and you become their clients. Of course the F&O trades needs to be closed. I think they cannot be shifted.

Still you should do your research before opening an account with a stock broker. For example you can find complaints against any broker in the Arbitration Status page of the NSE. You can also read reviews online about the broker. Read what their clients are saying. At least you get some idea.

Your bank also is a stock broker but its their by-product so I would advise to open an account with a company that specializes in stock brokering. That should be their main business. If that’s not their main business they will not be able to give kind of support you may need.

Discount Broker Benefits:

At least your F&O account should be with a discount broker. This is because if you are paying Rs. 50/- per lot then you are paying too much to your broker. The discount brokers charge per trade (not per lot). Most discount brokers in India charge are Rs. 20/- or less per trade.

Some of the good discount brokers in India are: Zerodha (Rs. 20 per trade), RKSV (5 free trades, per month then Rs. 20/- per trade) SASOnline (Rs. 9/- per trade.)

Why Two Trading Accounts?

You must have 2 trading accounts. One should always be used for long term stock investments. For example make a list of companies that you think will be multi-baggers in a few years and start a SIP (systematic investment plan) in them. Let say you invest 3000 every month in rotation on the 1st of every month in 5-10 companies of your choice. Lets say at an average return compounded annually these companies return 15% CAGR (some stocks return more), then in 31 years you will have more than 2 crores in your kitty. More than enough for your retirement from one account itself for a small investment of just Rs. 3000/- per month. Remember you can make much more if one of the stocks behaves like ITC or a Wipro.

The other account should be for F&O trading purposes only. Now here is some magic. Lets say you start with 2 lakh only and do not add a single paisa to that account ever. Now lets assume you make just 24% CAGR (Compound Annual Growth Rate – only 2% a month) which is entirely possible if you trade conservatively. In 20 years you will have almost 2 crores. Not to forget you have another trading account that’s also helping you grow your money.

If you are wiling to learn, have patience and discipline its entirety possible.

One of my regular blog readers in USA asked a great question in the article hedging vs stop loss which is better: In simple language he asked if one can buy an Index Future and hedge it with buying Puts in its ETF?

In India that question converts to if you can buy Nifty Future and hedge it with buying put of any electronic trading fund that mimics Nifty like Nifty BeES.

Unfortunately we don’t have options trading on ETFs here in India. Even if it was done it does not make sense to hedge Nifty Future with and option of a Fund.

There is one major reason for it and that is one unit (or lot) of the ETF fund will never match one lot size of Nifty in terms of cash. It will almost always be very small in size in terms of total value in Rupees.

ETFs usually have very small cash size. There is a reason for it – so that even those with not much money to invest in stock markets may be able to participate in its growth. Like in most equity mutual funds in India you can start a SIP for Rs. 500 per month.

In the Goldman Sachs Nifty ETS Fund (an electronic trading scheme fund that mimics Nifty a.k.a Nifty BeES) the minimum investment is Rs. 10000/- and any additional investment thereof is Rs. 1000/- only. If options is allowed here the ticket size will be too small to hedge anything against Nifty.

According to NSE website: Nifty BeES trades on the Capital Market segment of NSE. Each Nifty BeES unit is 1/10th of the S&P CNX Nifty Index value. Nifty BeES units are traded and settled in dematerialised form like any other share in the rolling settlement.

So essentially if you hedge you are only hedging 1/10th of your trade. In simple language its not technically a hedge to hedge Nifty Futures with Nifty BeES.

I wrote the same reply to Michael:

Hope the article helps you trade profitably there in the USA.

To answer your question I am not comfortable hedging one instrument with another instrument even if they are related. That’s not real hedging. I also see that there is a huge difference between dollar value of one contract of NQ and dollar value of one contract of ETF. In fact there is BIG difference – the ratio of NQ:QQQ stands at 1:800 approx.

There is no way you can hedge it with buying cheaper puts of QQQ. Please remember whenever you hedge the dollar value of both contracts should be same. Agreed ETFs are cheaper but they will be helpless in case there is a crash. The kind of money you make from puts will be negligible.

If you really want to save money, then buy slightly out of the money puts. They will also give a great protection – but it starts only after some loss is taken. ATM options are costly but they start protecting from day 1. You lose some, you gain some – that’s the puzzle you need to solve.

In the US if you don’t know that volumes are so huge that even ETFs have options, commodities like Gold, Silver, Crude have options. There is LEAP that is options expiring after years – even they are highly traded.

From https://en.wikipedia.org/wiki/LEAPS_(finance):

In finance, LEAPS (an acronym for Long Term Equity AnticiPation Security) are options of longer term until expiry than other, more common, options. LEAPS are available on approximately 2500 equities and 20 indexes. As with traditional short term options, LEAPS are available in two forms, calls and puts.

LEAPS were created relatively recently and typically extend for terms of 2 years out. Equity LEAPS always expire in January. For example, if today were November 2014, one could buy a Microsoft January call option that would expire in 2015, 2016, or 2017. The latter two are LEAPS.

In fact in US option spreads are traded as one single trade for the difference between them unlike in India where we have to trade two different legs and we are not sure exactly what points we are going get.

Trades are asking SEBI to at least block as margin the max loss that is possible in a debit or a credit spread, but for reasons better known to them they are still blocking full margin.

Update: Oct 30, 2019 – SEBI may lower margin requirements for hedged trades in F&O segment. Read more here – this is a good news if you have done my course:

https://www.moneycontrol.com/news/business/sebi-may-lower-margin-requirements-for-hedged-trades-in-fo-segment-4586591.html

For example if you buy an option for 10 and sell another OTM option for 5. In the US only 5+brokerage will be blocked as margin whereas here in India the brokers will ignore the buy and block full margin for the option sold.

SEBI’s reasoning is volumes. They say if any option goes deep in the money and there are less traders and the ask bid price has too much gap, the losses can be more than the max blocked. Unfortunately until this exists we have to trade whatever is given to us.

But once the rule changes we can trade many more lots with the same cash in our account. In that case the returns from the hedged trades will be even more. People who have taken my course can then make even more. 🙂

In my last article how to control greed as a trader, I had written two plans to make sure any speculation you do in your trades is properly managed by a trading plan so that one big loss does not wipe your entire account.

For traders restricting losses is very important. Only those who expertise in managing losses end up making money.

See I am not giving emphasis on profits. What I am actually giving emphasis is on restricting losses through a proper risk management plan. Once that is in place the profits will come.

I think every trader knows that there are two ways to restrict losses – one is to take a stop loss (get out of the trade when a per-determined loss is reached) or hedge the trade with an exact opposite trade (so that if the original trade is losing money the hedge trade makes money).

Note: In my course all strategies are properly hedged.

Now the biggest issue with many traders is what risk management plan to chose – stop loss or hedging?
Frankly it mostly depends on your comfort level with the kind of trades you take. Most of the traders I have met or seen take the stop loss plan. Well I have my own apprehensions with the stop loss plan.

In my view and experience the hedge plan is better than a stop loss plan especially for the positional trades.

For Intraday Future or Option trades the stop loss plan is better because on the day the trade is making money – the trailing stop loss method will work much better than the hedge method because it will make amazing money in a single day. However had you done a hedge strategy it would severely restrict the profits. And in trades that makes the loss, the stop loss will ensure a small loss. Benefits of the stop loss method ends here.

For the positional trades the hedging method far surpasses the stop loss method. It saves you from overnight exposure of the open trades.

In the US there is something called the GTC order. It’s known as Good Till Canceled Order. A GTC order is valid until it’s executed by the system, or is canceled by the trader. If kept open and not triggered, it gets canceled by the system on the expiry day. Which means it stays active overnight even during holidays when the markets are closed. So if next day the stock gaps against a Future or option when the markets open and if the GTC order is within the trigger range – it will get triggered by the system and stop your losses the next day or any day before the expiry as soon as the stock reaches the trigger level. It is another story that it has its own problems, but that’s beyond this subject.

Unfortunately in India we don’t have the GTC order. I sincerely hope they introduce it as soon as possible. This will tremendously benefit traders. Since there is no GTC, the only option to stop a huge loss is to hedge a position. You may have a stop loss in mind – but what if the stock gaps 20% below your last closing and you had a Future buy? Gone – months of profits gone!

Hey by the way, a GTC is also helpless here as the range will get triggered and the stop loss will hit with the stock being down 20% against the trade. That’s the reason why many traders even in the US do not usually put the GTC. They do it every day when the markets open and close it when it closes.

In India the only option to stop yourself from unlimited loss overnight is to take the hedging position. Not only can you sleep better at night thinking an insurance is there to save you from unlimited losses but also you have enough time to think to take the next action.

Consider this scenario – two traders take Future buy positional trade in the same stock and leave it overnight. One will take a stop loss if the stock goes down 5%, the other has hedged it by buying a ATM Put. There is a very bad news on the company after market closes and next morning the stock crashes and opens gap down 10%. The trader with the naked position was not only able to sleep well in night but had already decided to take the stop loss as soon as markets open at 9.15 am in the morning.

The trader with the hedge position will sleep well in night because he knows the protection is there to save him from huge loss and the max loss he will face will be a few points he paid to buy the protection. Within an hour or two the stock may reverse decreasing his losses by a huge margin or may get back into profits, who knows?

This the hedge trader clearly knows that the stock may reverse and he is in his liberty to take the stop loss any day before expiry. In fact, if comfortable with max loss, he can leave the trade till the expiry day. Well let me tell out of experience that a lot of times the stock actually reverses and takes the loss trade into a profitable one by the time the expiry arrives – sometimes much before that. 🙂

For the stop loss trader the game was over long back.

Can you now see the beauty of hedging vs stop loss? Hedging also does the same thing i.e stop your losses but it does it in a much better way. I am still confused why Indian traders DO NOT hedge their positions especially if they leave it open overnight.

I agree that the upfront cost to hedge your trades seems a bit too much, but whats wrong in paying a small price now than paying a much bigger price when the accident actually happens?

If you are a trader who falls into the taking the stop loss when time comes, please think of hedging your positions. Practice with half of your trades and after three months compare the profit and loss of both the risk management methods. I bet you will switch over to the hedging risk management method once you see the benefits.

Before I finish let me tell you options were invented as a hedging tool and not as a trading tool. Its a different thing that today traders all over the world use it as a trading tool. Well nothing wrong with that. But even if trading options why not hedge them with options?

To conclude my experience says the hedge plan is better than the stop loss plan. Please let me know your views.

In this article you will learn how you to control greed while trading. Your biggest enemy as a stock trader is nobody else but your own greed and fear. Today lets learn to control greed.

In one of my recent articles http://www.theoptioncourse.com/making-use-of-vix-volatility/ I got an interesting comment from one of my regular website visitor Mr. G Allen. I quote his question with minor editions:

Keep such timely articles coming – it only adds to the strength of the trades that we take as per what has been taught in your options course.

Today, I want to touch upon the often repeated maxim, “Ride your winners and cut your losses”.

Indeed, I know that greed has to be under control as you have very rightly stressed above – there is no denying that, but say for example, if one has cut his losing trade immediately, but is riding (carrying) his winning trade as should be the case. In such a scenario, where does one draw the line as far as greed is concerned. Would carrying the winning trade tantamount or be inferred as greed? And should the person get out even as the going is good? Or does the maxim apply more to Investment rather than Trading?

In simple terms how does one stick to the above discipline, and yet not be labeled greedy?

Well first of all a Big Thank You Allen for this question. After all we all are trading to make money. One can easily say we all are greedy so we should not trade. And if do not get greedy we do not make money. 🙂 So where to draw that line where we do not greedy and lose too much money?

In this article I will try to clear the dilemma (confusion) what I mean when I say do not be Greedy when trading. Its just not me – all the experts and experienced professionals say that all over the world to traders, the same thing – just don’t be Greedy.

Well this is the most important and very difficult emotion to control. Greed is one of the main reason why people lose money trading. Not just share trading – it is one of the biggest reason why companies fail, people lose a lot of money trading real estate and taking a pure gamble in any field to make money fast without working hard or speculating.

Since I cannot talk about other fields let me confine myself to where to draw the line on greed when it comes to share trading and F&O trading.

Well first lets discuss how you can control greed in share trading:

Lets suppose your friend made good return on investment in an IPO (Initial public offering) and told it to you. Or maybe you read stories on people making huge money on listing day of an IPO. Now you also start dreaming. You start reading newspapers for the next IPO. You start imagining that in the next IPO (whichever company it is does not matter) you will invest 1 lakh and make 1.10 lakhs on listing day and will inform about it to your friends. Here greed is taking control of your emotions.

You see even if correct you will end up making only 10k or even less. You have already decided that you will exit the stock on the listing day itself and you are “sure” that you will make a profit because your friend or someone made it. You are not even thinking that 10,000 will not change your life anyway but you still want to be in the club of people making money on the listing day. How strange is that?

You don’t want to do any research on the next IPO. The greedy in you thinks that every IPO is same where you can make money fast. You don’t want to be left behind. You also want to be a small part of the success story that you usually read in the newspapers.

Well what you don’t know is that nobody cares if you made money in an IPO – not even your family members. No press or magazine will cover your measly 10 thousand profit even if you make that money. (There is a 90% chance that you will lose money but that is a different story.)

But you want to live in that moment of glory and you take a chance with one lakh rupees. Well do you know why SEBI restricted limited shares in IPOs for individuals (and even for institutional investors)? If you don’t know the real reason was to restrict retailers to lose a lot of money in IPOs. When this rule was not in place, after one win they used to put all their money into their next IPO only to lose more than they made. SEBI had to safeguard its investors and since it cannot control the greed in us, it controlled our access to shares we can get through IPOs. 🙂

Same can be said for shares. When we see a stock falling 10% we buy it thinking within days it will bounce back – only to find it going even further down. This clearly was greed which you should learn to control.

How to Control Greed Buying Shares and Profit?

Lets say you have decided to invest 30,000 in a share for the short term for a quick profit. You wait for a correction and it has arrived. You should invest only 15,000 in that share.

Now two things can happen.

1. The stock falls 10%. At this stage exit with Rs. 1500 loss. Its worth to note that had you invested all 30000 at that stage you could have lost 3,000.
2. The stock gains 10%. Now buy stock worth 5000 more with your stop loss at the price you entered the stock. If that happens your loss is only 500. But if the stock moves up 10% more buy more worth 5000. Now your stop loss is 10% below it. If it goes there you exit with a profit of Rs. 1000. Now if it goes up another 10% add some extra. Now if it goes below 10% you exit with a 3000 profit. In fact you can continue it as long as you want.

Can you see how mathematically you are riding your profits WITHOUT greed and cutting your losses? Had you entered the stock with 30k – you could have either made a profit of 3k or loss of 3k. So if you are 50% of the times right – you break even. But in the above strategy you can make amazing profits if you are correct even 50% of the times. See how you controlled greed still made amazing profits.

Now coming to F&O trading. Most of people reading this fall under this category.

The real problem here is speculation. How many times we have seen an option worth 10 goes on to become 100 in a few days? Many times. Whenever that happens we start thinking – oh I missed this opportunity, but next time for sure I won’t.

When that person makes money in his first trade probably played with one lot – he increases the trade amount by 5 times thinking he can make windfall profits every time he plays – that unfortunately never happens. And that’s how the series of losses starts.

And here is the worst part. When you see an option priced 10 becoming 100 your brain thinks that had you invested ALL the amount you had in your bank account it would have multiplied 10 times in only few days. It doesn’t stop here – you tend to dream that you can then double or triple that amount every month and become very rich very fast. In quest of doubling or tripping our money very fast we actually become poorer and poorer in every trade and every month passing by. Unfortunately that hope never dies.

There is another thing. Fear is another destructive emotion. How many times you bought an option for 30 – 40 odd points and sold it at 50 or 60? When you got an opportunity to actually double your money in that trade – you decided to book profit thinking even this small profit may get into losses because of fear.

What I am trying to say is that your one trade that you were looking for all your life – that one trade that will cover all your losses and turn your account into huge profit will never ever come. Its not that those trades are not there – they are there every month – the problem is you do not have a plan – the only emotions ruling you are greed and fear – and they are the main cause why you are unable to make profits in the options game.

So How to Control Greed (and Fear) While Trading Future & Options?

Lets go back to Allen’s maxim: Ride your winners and cut your losses. You know what that is? Its a PLAN. Its just a plan that you need to plan.

Lets take an example.

Future trading.

I have had a customer who was sitting at one crore loss trading Futures. Too many lots shorted naked and averaging them whenever Nifty rose 100 points. Unfortunately from 6000 to 9000 – the rally did not stop. His life’s savings gone. Isn’t greed to be blamed?

What if he had a plan like taking a stop loss at one lakh or even 5 lakhs. What if every time is shorted a Future he also bought a ATM Call option? Today he would be left with 95 lakh to trade and get back that money and make a profit. Instead he was pleading me to teach how to make 2% a month because he said he has now learned a lesson that making even 2% a month is much better than losing 1 crore in less than 1 year.

When I asked him why he kept shorting – his answer was he was sure that like 2008 this was also a bubble and he can make a lot of money. Well that was speculation and not a plan.

So what is a plan?

Plan can be of two types.

1. The stop loss plan: This is mostly done by the Future traders. If they take a 100 point loss – they take a 200 points profit. Loss to profit ratio for most is 1:2. That’s a plan. Its a different story that they may lose in all the trades. But at least on paper the plan is good. Because to be in profit they have to be 50% of the time correct. Test yourself and see if you are good at predicting the markets even 50% of the times then this plan will work for you. If its working stick to it for life. Do not change just because you think some other plan will bring more profits. You may have lost money to prefect this plan now do not switch because you will need more time and money to perfect another plan.

(I am not good at predicting the direction so I stick to the second plan):

2. The hedging plan: Mostly done by option traders. In simple terms if you buy one option – just sell one option further away. Similarly if you are seller of option just buy options further away. Its simple and straight forward. It cannot do damage to your account whatsoever happens. With Futures too if you are selling you can buy calls and if you are buying you can buy puts. Agreed some profits will be eaten away but when wrong you will be safe. A few trades will not take you out of the game forever.

In my view the hedge plan is better than the stop loss plan.

So “Ride your winners and cut your losses is only this” – when you are making profits you should know where to stop. If you do not know where to stop then you have fallen for greed and will never make money.

And if you are one of those traders who want to ride the markets for as long as possible then you should have a stop loss in the system which you should keep increasing with every few points move up with the indices. This “few” points is better known to you. That’s known as the trailing stop loss plan – but its only possible if you are trading full time. And again this is possible if you are trading intraday. How do you know what will happen to the markets the next day? If you don’t know and are leaving you trade naked, then again you have fallen for greed and not having a plan. Next day your 100 points profit can go into a 10 point loss or more. So if you are trading with trailing stop loss make sure to close the trade the same day at 3.15 pm and be happy with whatever profits you have made. If you think there is more to the rally – just hedge your profitable trade at 3.15 pm – that is a good plan.

Remember this – share market is a serious business and only those who are willing to put some effort will make money. Just like any other business you need to plan it properly. You also need to get some education on options and futures on how they work and how you can use them as an arsenal to make money trading.

There is no short cut to success. Similarly there is no short cut here. You got to work your way up – just like in your job. Those who are smart, those who can control these two emotions greed and fear and those who have a plan will almost always succeed in the stock market business.

Thanks for the question Mr. Allen, and I hope I have answered what you wanted to know.

Please ask questions I will gladly help.

On Friday, 10th of July, 2015 I received an interesting email from one of first time visitor’s to my site. I get a lot of emails everyday of stories of mistakes done while trading, but this one stands out as this person kept on repeating his mistakes in an act of revenge to get back his lost money from the stock markets. Too see the end result you will have to read his investing and trading story. In the end I have something to say. Please read that as well. I have also added my observations in between in round brackets to make it an interesting read.

Note: This article is almost 3000 words so take a cup of tea or coffee and read at your leisure. 🙂
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Hi Dilip,

I had a Demat account with yyy securities. (Name of the brokerage company deleted to hide identity. Its my job to give you correct advice and education, not to defame anyone.)

I had 720 equity shares of L&T – after split they became 1080. I had other shares as well – 500 of HUL, 302 of Yes Bank, 300 of Bharti Airtel, and 100 of HDIL.

Then one day in August 2013, my broker called from a mobile phone number and said that some trades had wrongly happened in my account and they will be corrected tomorrow, without disclosing much details. I did not have an idea as to the extent it would be. He also requested me to confirm at 3.30 pm that I have been informed. At 3.30 pm, I got a confirmation call and without suspecting anything fishy, I mentioned that a representative had called and informed me.

Next day was 15th August, I called the guy who called from his mobile and asked him about what had exactly happened. He informed that rectification would be done the next day when markets open – but did not give any explicit information.

Next morning he called me again from his mobile phone and told me that the loss has become 4 lakhs, I asked him which loss? He replied that the positions were carried forward. He asked me if I want him to square of my positions. I told him that just stop this. He then visited my office personally and assured me that he would settle my account within a week.

(Something is not clear here – exactly why his account was in a loss if he had shares in his Demat account? The shares can go down in value – but you never get a margin call from broker to sell the shares as they are fully paid. I suspect something wrong was done on his account either with his permission or without OR something is hidden here which he does not want to tell – maybe he gave his brokers permission to trade in F&O without his permission on the trades. I think when they called him, they might have told him about Futures or Options trading that he did not understand and agreed.)

(Mistake 1 – Do not leave your account to be managed by someone else even if its your broker. He is a broker not a derivative trading or stock investment expert. You are responsible for your money so you should take all the decisions.)

I waited for a week and nothing happened.

I mailed the compliance but there was no reply. Then I visited the broker myself and they managed to instill fear in me to a point where I thought as if I myself had done some mistake. They told me that the only way I could recover the loss is by trading under their guidance.

Here is where I committed my biggest mistake.

(Mistake 2 – When in matters of money do not believe anyone – do your own research.)

They then made me buy Nifty 800 qty, and it fell by 60 points to extend my loss by Rs. 48,000.

I committed another mistake post this. I got the software installed and started trading myself. Till 2 weeks back,I was not aware that a thing called trading exists (In hindsight, at times ignorance is bliss), and here I was without a clue indulging in trading and putting at stake such a huge amount.

(Mistake 3 – No risk management – he is just trading huge quantity with thinking about the losses in his first week of trading itself. Just because you have a software does not mean you will become a successful trader. You really don’t need a software to trade – you need your brains. Hey everyone of us can buy software and trade and make money. Do you think its possible?)

My equity holding before this loss was 18 lakhs, but besides the loss of 4.48 lakhs plus brokerage, the shares had also corrected by more than 12 percent which made my account shrink to around 11 lakhs. I felt a lot of pressure.

Then, I traded myself like a mad man aggressively. And in 3 successive days, just by shorting Reliance Communications, I earned 195,000.

(Mistake 4 – So what if he made money – this was fluke – he was speculating and that’s a mistake.)

I thought I could cover this loss of 4.48 lakhs myself.

Then, I simply thought shorting was the way and blindly shorted everything that had increased substantially in the last few weeks.

(Mistake 5 – Shorting stocks just because they had increased in value. Shorting Futures or Calls on paper is real unlimited loss as the stock can rise infinitely.)

One such stock happened to be Aurobindo Pharma, it was a lot of 2000 then and I shorted it at around 260 and averaged it at every 9 rupee increase. So I had 4 lots at average of 275. It just did not come close to my average at that time and I feared averaging further. I hoped it would fall, but it never did. Finally, I squared it off after rolling over once, when it reached 337. Losing a whopping 5 lakhs in this trade alone. (Like I always say shorting naked Futures or Options (without hedge) is good till it lasts – one bad trade can take out months of profits. You end up repeating the same cycle for years.)

I also shorted Tata Steel and Tech Mahindra and lost a further 2 lakhs.

My loss had only compounded. And finally I discussed it with friends who advised me to file a complaint with SEBI against yyy securities.

I did so, but at the arbitration as well everything went against me. From acknowledging trades to continuing trading with them, I had no other option.

In frustration, I sold of all my equity holdings in Feb 2014, just before the Modi Bull run was about to gain momentum, and made a net loss of 11.20 lakhs and exited the stock market. I wish I had stopped there.

(Mistake 6 – Selling shares in frustration just because you had bad experience with derivatives trading. What was the mistake of your shares? Its like taking revenge on someone else because of mistakes done by you. Anyways, most of us sell shares just before they rally isn’t it?)

Then, on the day Modi became the PM, after taking a 3 month break and missing a major bull run, the value of my equity holdings itself would have increased by around 46%.

So, I began another unplanned madness journey with a small amount with another broker. On an investment of 1 lakh, I earned Rs. 42,000 in a month. I would however in this as well, add money in my trading account whenever I needed to average and then withdraw money after exiting the position.

But, I had to get trapped and I bought GMR infra in July and averaged it at very short gaps and had 150,000 quantity. Had go deposit 12 lakhs to hold in. It simultaneously came in F&O Ban. I asked the broker, what can be done in a ban to lower my average? He said you can only wait for the ban to be lifted. I waited till it came to Rs. 5 below my bought price. Finally, I exited at a loss of around 6.3 lakhs.

(Mistake 7 – Trading F&O in unpopular and high risk stocks like GMR Infra. Had he traded in something like SBI or HDFC do you think the regulators would have banned derivative trading on these shares? NEVER do derivative trading in small caps and high volatile stocks.)

Here, one lack of information increased my loss. I wasn’t aware that in ban period I could do intraday trades. I made a fresh loss of 6.3 lakhs, taking my net loss to 17.5 lakhs.

(I am not sure about this. I think when F&O is banned in a stock even Intraday trading is not allowed, because the system will not allow to buy or sell that stock in the F&O segment. Don’t know why he is saying this.)

I quit my job that paid me 1.5 lakhs per month post this and thought, I would rather explore the world and do things I love with my left savings of 26 lakhs. (Really dude – leaving a job paying almost 30,000 US Dollars per year in India needs guts that too after losing Rs. 17 lakhs. Kudos.)

I did a bag-packers trip to Europe, volunteered in an ashram, did trekking for 8 months and had a blissful time. The loss seemed little in front of the beauty of this existence. (Fantastic – great decision of traveling and doing things that you love for some time.)

But bad habits die hard, I came back in April and in May again indulged in trading, setting rules for myself.

I invested 2 lakhs, and in a month it increased by 1.3 lakhs. It looked as if this is going to be my time.

Then ,on June 2 this year, I carried forward 5 lots of JP Associates. Next morning when it fell, I deposited another 4 lakhs and added another 24 lots, making it 29 lots. I asked the RM (relationship manager) at the broker firm to inform me about any margin requirements. He said he will do so. But he had a family emergency and left without any Information. I also could not track the price. Then, it fell by 35% on that day, and all my money 7.3 lakhs was washed off without intimidating me, though I had the funds. It recovered within a day to reach just 20 paise short of my average price the very next day.

But I was washed. I argued with the broker firm, but they blamed it on the RMS system. (Risk Management System.)

I traded further and put all my balance of 20 lakhs to avoid such a situation.

(Mistake 8 – You just cannot put ALL the money you own in one type of investment even if you are the best investor in the world. I am sure even Warren Buffet would have had investments in instruments other than shares. Like they say, “don’t put all your eggs in one basket”.)

This time magically, within 3 days,I recovered 2.3 lakhs. Making my net loss to 5 lakhs. Desperation to cover this quickly set in, which is an enough ingredient for suicide in stock market.

(True – Mistake 9 – The urge to make money fast especially to recover losses will lead to more losses.)

I shorted Dish TV blindly at a gap of just 50 paise and had 76,000 qty (19 lots short) at an average of 102.5. I held it on for a week, hoping it will come down. It lingered around 107 for 5 days and suddenly it spiked to 117 in one day. I was loosing 11 lakhs in this trade alone and the broker advised me to square it off, saying it will rise further. I did not hedge it either.

(Mistake 10 – HUGE mistake not to hedge a Short Future in a high risk stock that too when a lot is at stake.)

Eventually, when it came to 113.10, I squared off all. In hindsight, a maniac behavior. I lost 8 lakhs in this trade alone, only to see it drop to 101 in two days.

I just couldn’t believe what had happened. After booking, it sinks in a lot more than while being in loss open ended.

After gaining 10-15,000 everyday for a week, I again traded aggressively.

(Mistake 11 – Again aggressive?? This guy just doesn’t seem to learn.)

Ashok Leyland, this time being the stock I shorted 48,000 at an average of 72.2 and booked loss when it reached 75.10 (the Dish TV phobia prompting to cover it at at loss of 140,000). I again saw it come to 71 in a couple of days.

I thought this was enough. (Oh – at last after he lost a fortune.)

I filed a complaint with NSE regarding the squaring off positions of JP on June 3 by the broker. The broker requested me to take back my complaint and was ready for a reconciliation. Though, the loss suffered was 7.3 lakhs, and this time I had denied the trades in the confirmation call, the maximum offer I got was 1 lakh rupees from them or continue with the case.

I decided to take whatever was being given and just trade with this amount.

(Mistake 12 – Just lost for words. I mean what can you call trading with money someone got as a compensation to withdraw a case?)

I took this money and gave them a resolution letter. With this amount, as a final thing, in this week I lost 60,000 again buying Vedanta. I again exited prematurely.

Have withdrawn the balance 40,000. (Mistake 13 – Dude you should have lost this as well – sorry this is not a mistake but my outburst on you. Sorry but all that happened is because of your mistakes. You paid the price for being greedy and egoistic. That’s why its very important to control greed.)

The loss this time is Rs. 30.5 lakhs in total and what a waste of time, energy and going through sleepless nights and turmoil. (The loss frankly is not that big considering the kind of trades you were doing. Traders have lost more – read here and here. But the real loss is sheer waste of time without learning anything out of it. I would never take any trade if it does not allow me to sleep well in the night. I would rather make small profit or a small loss but sleep well in the night not bothering about my trades.)

I have a savings left of 11.5 lakhs. Having lost 30.5 lakhs in total in irrational and suicidal trading.

To add salt to wounds, L&T, HUL, Bharti Airtel,Yes Bank closed to their highs. Today, I would have had 12 lakhs more from my initial equity holdings had they been in place.

So besides the 30.5 lakhs loss, and from the price I sold my equity holdings in Feb 2014, I would have had a total savings including equity holdings of an additional 19 lakhs.

Had that unauthorized trade by the broker yyy in 2013 not happened, I would have had a savings of nearly 60 lakhs plus interest on it.

Had I not indulged in trading myself, I could have maximum lost the 4 lakhs that they initially lost for me. Still 56 lakhs plus interest on it would have meant a saving of nearly 65-66 lakhs.

I have consistently taken rash decisions in this period. (True – Thank God you understand now.)

I am 29 now and had worked hard and done well for myself since turning 21 and saving that amount till I was 27. But that day in August 2013, changed the course of my life in a big way.

It’s primarily the huge risks that I took, which is responsible for where I am, but the broker firm has played its part. That loss of 4 lakhs was a trigger for me, and I know that had that not happened, I never had the need to trade. But more than that, what I did post that has done the maximum damage.

The only saving by the grace of God is, I am alive and if I do the right things, I can earn money. (Very good, very positive – that’s the way to think forward. All the Best. 🙂 )

But the pain of doing this stupidity thrice hurts, and the thought of what could have been had I exited at various stages, had I not re-entered, had I done it a little rationally.

With this 11.5 lakhs of savings, I have done an FD of 10 lakhs.

(Mistake 13 – FD means now you will lose even more. Some part of it should go into stocks investment gradually, and small leverage should be done with proper planning in derivatives trading. That is the way to invest money. The first part was Greed and the second part is Fear – now fear will make sure this guy losses even more. He has 30 years before he retires. Doing only FDs with money is suicidal too.)

I am alone and not planning to work for the time being. (WHY?) After a loss of this magnitude, the feeling of having lost what’s being earned with hard work in 6-7 years being wiped out and then working another 4-5 years to get back to where I could have been, doesn’t seem worth it at this stage.

(Hey dude just to cheer you up – even I lost 7 lakhs trading – and I had ONLY that money left in my bank when my wife was pregnant. I had to take a loan of 1 lakh to survive – but I never lost it in the mind – I came back strongly with hard word and a weapon called knowledge to make money. You have to rise up buddy there is no other option. So get up and look for a job first. Get some knowledge and trade with a plan. I bet you will make money.)

Perhaps, time will give more clarity.

Thank you for your platform for sharing.

I have not mentioned my name, but can speak to you if you can email me your number. Haven’t checked this page for your contact details.

Regards,
Shivashambho
===============================================
Thank you Mr. Shivashambho for sharing your trading journey. It will help a lot of people reading this not to get into irrational trading.

My advice: Not just stock trading, learn from any mistake you do in your life. Everyday is a learning experience – you don’t stop learning when you are 60 just because you have retired. People who have stopped learning are as good as dead. Why do you think in most companies people who constantly learn and work hard are the ones who keep getting promotions? Others may just crib, but the fact is you get what you deserve.

Stock trading is also a business where people who plan, go slow, who have the knowledge will almost always survive. Those who do irrational trading and speculation just because they want to make money will lose money and wither away.

My only objective to post his email as a post was that if you are in the middle of something like this then please STOP NOW. You may end up being even worse than what you just read. Please then do not blame your luck, broker or SEBI or even God.

And please do not fear the stock markets either. On a ten year scale the stock markets will return more than any other investment vehicle in this world including real state or gold. Yes there is risk, but if you learn to manage risk there is a lot of money to be made. Just plan your trading well.

Please share your story. You can contact me or just write in the comments section of this post.

Thanks for reading such a long post.

Yesterday I got one of the best testimonials of my course. More testimonials here.

I want to share with you:

From: Deepak P
Sent: Thursday, July 09, 2015 3:09 PM
To: Dilip Shaw
Subject: Update on Course

Hi Dilip,

I have executed Strategy 1, 3 times after taking your course in May. It has worked all the time.

At times, it was bit boring to just watch the market without doing anything. 🙂 But, it worked eventually all the times.

Just wanted to say thank you for that wonderful course.

With Best Regards,
Deepak P

(Name edited and email deleted to hide identity – Results may vary for users)

See this is what I want to see. This person has strictly followed the strategy – not taken any undue action in between – shown some patience and it worked. If it has worked for Deepak for the last 3 times I am sure it has worked for others as well.

I agree my strategies are boring. You have nothing to do for days, still at the end of the month you make money. This is what is all that matters – the end result is important not what happens in between. People who trade for the sake of trading or fun will never make money. People who have a plan and show patience and discipline will.

Thanks Deepak. You made my day.

Why do these strategies work in almost all conditions?

Because these strategies are based on theta decay or time erosion. Over a period of time, it’s nearly impossible to beat time. You can predict direction sometimes, but you just cannot predict how long will the stock take to reach there. You may be correct in direction but most of the times you will never be able to correctly predict the timing of the move. It may happen after the expiry – but the option buyer by this time has already lost his money. Here is where we can benefit. Even if the direction of the option buyer is correct but the timing is wrong or the speed is not fast enough, the option sellers will keep making money.

And if the direction is wrong or if there is no movement the option sellers will still make money. 🙂 Can you see how much options favors the sellers just because we take unlimited risk. Yes that unlimited risk also comes sometimes and the sellers can lose a lot of money – here is where the hedge will save us. There is a lot to learn in the course.

It gives me immense pleasure to see people doing my course are making money. That was my real objective to start this website and offer a course. Yes I am also making some income but it’s not something to boast off. That’s secondary motivation to keep working on the site – but seeing that my efforts are not going in vain is a pleasure that cannot be measured.

Please keep giving feedback. It will help me to improve the service and the website.

Note: Before reading this article please read Greek Referendum Trading Tip Inside to better understand when we initiated this trade and how we are booking profits now.

The movement we wanted has come. It may not be because of the Greek crises but because of the China market crash. We are least bothered. We wanted a strong move and increase in VIX and we got it. A 1.75% increase in one day movement should make the long strangle profitable. It is just 5 days old, so not much premium is lost. VIX increased by 9.07% and closed at 17.79. Increase in VIX will make the long strangle profitable.

So those who listened to my advice and entered into a long strangle can book profits tomorrow morning before Nifty whipsaws (move in the opposite direction). Greed will now come into force and people will start investing in stocks anytime and Nifty will again resume its upward journey. This will kill VIX and take this profitable long strangle back into loss. This is what we do not want so just book profits, it does not matter even if it is small. The trade was for small profit or a small loss. Since we have made a small profit lets book it. Let not greed take over you. This small profit should be more than 10% of the blocked margin, and that is enough for us. Stick to the plan and you will become a successful trader.

Remember its about small profits more times than the small occasional losses. And you should be in profits almost every month.

Tip for traders who have subscribed my course: VIX has increased. The directional trade should be in profit. You can close it. Now its great time to trade our strategies. Nifty has fallen and the VIX has increased. It is perfect time to trade strategy 1, and if you are a bit risk taker you can straight away trade the strategy 2 on the put side.

It is also a great time to trade the conservative stock option trade. Many stocks have fallen – see if your favorite stock has fallen too. Options premium have increased. You have a chance to make almost Rs. 15,000 this expiry itself – and if there is a small loss we need not worry we have a plan to get back our money and still make the same profit.

So please don’t be lazy and take action now.

I hope you learned a lesson on how to take a decision when to trade from this Greek situation. Any major news will spike the VIX and make Nifty move. And then VIX will go back to normal. The idea is to take benefit of this situation. Markets will give you a plenty of opportunity to trade, just keep a look out for them. Listen to news or read newspapers and take action before it happens. Since we are not speculating we can take a calculated risk and you will see that most of the times these calculated risks will be profitable.

Important: The whole idea of this post was to teach you how to find opportunities to trade – how to manage risk and plan the trade, when to take the profits out and what to do if there is a loss. This was in NOT written to show that look I am a great trader. I am a 2-3% man and I look for small opportunities to make profitable trades. Most of the times I am successful, sometimes I am not and I am ok with those occasional small losses. No trader in this world can make profits in all the trades. The idea is to trade to make money to beat inflation and also beat average mutual fund returns of almost 15% a year. With conservative trades and occasional small bets like this we can easily achieve that.

Remember option trading will not make you rich in a day, a month or even a year. But in 5-6 years a lot of wealth can be accumulated.

I will definitely email my course subscribers you whenever there is a new opportunity. Ideas sent to them may or may not be uploaded in this site. Even if uploaded it will be after the opportunity is over.

You can pay the option course fees here.

I hope you know that there is a referendum (voting) in Greece this Sunday 5th of July 2015, on whether they want to remain in Euro or exit. If the country rejects the bailout then Greece becomes a defaulter and may have to exit the Euro. If accepts then it gets more into debt.

Both are bad for their economy.

However we cannot control Greece or whatever is happening there. What we can control is our trades.

So lets wait for the outcome and take our trades.

What Can You Trade?

Monday morning it will be clear what will happen to Greece and of course Nifty will also react to the news. If traders think its bad news, Nifty will fall and if they think its good, Nifty may rise. Both good for us. 🙂

People who have taken my course: I suggest keep some money for the directional trade of my course. If you do not have the cash no need to trade – we can wait for another opportunity. BUT PLEASE DO NO ADD any cash to your trading account just because I am saying this. There will be a lot of opportunities in future – you can wait for them – but please do not add any money. If you have spare cash left ONLY THEN go ahead and trade.

Remember in the directional trade we need a movement fast any direction – and I am quite sure after the news there will be some movement.

Eventually if movement comes, we can exit in profits in a few days and if not, be ready to exit with a small loss because our original plan is that this will be a quick and fast positional trade. Stick to the plan.

Since the returns in this trade is in the double digits I request you to keep the trade size small. Remember that Nifty may not move. So maximum you can stay is till this Friday, 10th of July 2015.

Even if Nifty does not move you can exit with a small profit or loss – if your Future direction is correct you should be in profit – and depending on the VIX you can be in profit even if you were wrong in your Future trade. Let luck play a small part in our trade – but we will make sure the trade is properly hedged so we are safe. Here we cannot let luck take over us.

Another trade that can be taken is the Long Strangle. However there is some risk here as both the call and the put options can lose money but since you are exiting in 5 days, not much should be lost. However if there is sudden rally, this trade will produce a fast profit very quickly.

Note for traders who have taken my course and are already in Strategy 1: You can take the Long Strangle if you do not have cash to trade the directional trade. Since not much money is required you can trade this in less number of lots.

Take you profits out at reasonable level. Do not wait till expiry. If the trade plan is to stay for the short term, then stay for the short term. Again, stick to the plan.

Hope these emails and articles are helping you. I thought just telling you the strategies are not enough, so I have started writing about the kind of trades that you can trade whenever a situation arrives.

If you are not my email subscriber please do subscribe. Lets make this a profitable journey for all of us. If you have any other idea please tell us in the comments section. Lets help each other.

Thank You.

UPDATE on 07-July-2015:

Greece referendum results of not accepting creditors loan and a possible exit from the Euro zone has not effected Nifty and it looks like investors have ignored the Grexit news. Nifty has not moved much. As traders we should accept the situation and wait for our exit plan.

Those who are in the long strangle should exit the trade by 3.15 pm, Friday 10-July-2015, at any cost. Weekends will eat more premium so we cannot leave that open in the hope something will happen in the weekend. Just stick to the trade plan and cut short the losses. On the other hand we still have time till Friday.

I will update this on Friday. In between if you make a profit please exit the trade.

That is the reason why I like the non-directional trade. It brings profit almost every month. Only if there is a fast and strong trend one side it loses a small limited money. And you feel very safe with it.

Please not that a trade may not be perfect – but the plan and the execution should be perfect.

Update on 08-July-2015:

It is just 5 days since we initiated this trade. Nifty has fallen almost 2% today and VIX increased by 9.07% and closed at 17.79. Since VIX increased it should make the directional as well as the long strangle profitable. We can book profits today in the directional trade of my course or the long strangle whichever you had taken. For full update please read this article – book your profits.

Disclaimer: I am trying to help you to trade better. Still stock market investments are subject to market risks. Please do your own research before taking a trade.

Refer my post and email dated June 29, 2015 – Greece Crisis What Should You Trade.

On that day I told you that VIX has increased considerably and it is a great time to sell out of the money options and also hedge them by buying options. People who had done that may be in good profits now.

The VIX has come considerably down and its hovering near 15.41. From 18.18 to 15.41 in 3 days. This is a drop of 15.25%. Excellent for sellers. Both the calls and puts option premiums would have shrunken and the trade can be taken off. As the small profit wherever that may be has been achieved there is no need to stay in the trade.

See its profit vs time. Even if the profit is 2% – it has come pretty fast in 3 odd days. Is there any need to be greedy and wait for the options to decrease more in value? We made a quick profit and we should exit. This is how a good trader takes his trade. The original plan was to make a quick profit – so no matter what happens we will NOT alter that plan.

Kill that devil called GREED and you will become a better trader I bet.

Situations like this can bring in quick profits. 🙂 So we must look out for such situations. Since VIX is directly related to world news and happenings we can make use of it to decide, to some extend, time to sell or buy options.

Well that does not mean we will never be wrong. We can be and there should be a plan to exit. For traders who have taken my course the plan is to go straight to Strategy 2. If you haven’t taken my course and reading this you can make your own plan – whatever it is, be a stop loss or adjustments. But you must TAKE ACTION when things go wrong.

Moreover Nifty also remained in a range – low of 8195 and currently around 8460. Those 200-300 odd points movement does not matter when VIX has decreased considerably because even if one option will lose money the other makes more than the losses. Ultimately the trade is in profit.

Conclusion:

When VIX increases take you chances. Sell options and hedge them properly, set your target profits and exit. But you must also have a Plan B if VIX does not decrease or if anything goes wrong.

Lets wait for another opportunity. 🙂

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