Why overtrading in stocks is not good

If you are a stock market trader and if you think that you would be able to make more money by trading more often than you are trading currently, think again. Trading more may not necessarily translate into more profits for you, because the more you trade, the more you would be exposed to risks associated with stock market trading. This is because your attention would be divided into monitoring several trades simultaneously and, due to this, you may not be able to give the attention that is due to each and every trade, and monitoring multiple trades can often create hassled situation where chances are that you are more likely to get things wrong rather than right.

That apart, each and every trade involves transaction cost, which includes brokerage, STT, CGST, SGST, stamp charges and turnover charges. All these charges can add up to a substantial amount on high volume trading and these can eat up a large chunk of your profits. Worse, if you stand to lose money on your trades at the end of the day, your losses will get enlarged by these transaction costs.

Also, capital gains made by traders are subjected to tax at the rate of 15.45% if they do not hold the stocks for more than one year, while capital gains of long-term investors holding stocks for more than one year are tax-free.

In view of these, it is advisable to enter into limited number of trades to reduce transaction cost and hold the stocks for a year or more so as to avoid paying capital gains tax.