This day trader lost Rs 24 lakh in 5 minutes

until the principles of trading in futures and choices completely, that you must end up working big losses, as Chirag Gupta, a 27-yr-previous day trader just lately did.

imagine investing about Rs 11,250 in the inventory market and getting a return of Rs 6.08 lakh in a span of five minutes.

however when the dealer sends you the contract word, the securities transaction tax (STT) for the exchange is over Rs 24 lakh -- almost four times the profit -- and it is not a printing mistake.

It took place with 27-yr-old management pupil Chirag Gupta.

When about five minutes had been left for the markets to close, Gupta noticed that he might purchase Nifty call options at 5 paise per unit and make a revenue of around Rs 2.75 a unit.

He bought options that Nifty will close above 8,600 and it closed at eight,602.75.

Gupta bought all of the Nifty quite a bit (three,000) he could within the short span of time.

One Nifty lot has 75 units.

Later, he realised that his dealer had deducted over Rs 24 lakh from his trading account for STT.

Gupta's mistake: He let the choice expire.

The calculation of STT is different if a dealer squares off the place sooner than expiry and if he lets the contract expire.

How first-time traders lose cash within the inventory market

"If a person squares off his lengthy place before the market closes, STT of 0.05 per cent is levied on the top class paid when contract is bought. then again, if the contract expires, the STT rate is 0.125 per cent, and is charged on your complete agreement value of the contract, including the worth (or worth) of the asset," says Venu Madhav, chief running officer, Zerodha.

Brokers counsel that regardless of whether a dealer has a put choice or a call possibility or whether s/he is in revenue or loss, s/he will have to be sure that all the trades are settled before the expiry of contract.

Brokers do have a mechanism to prevent such considerations.

"Most brokers monitor such trades. On the final day of expiry of contracts, we send messages and emails to clients to sq. off their positions. If clients still fail to take action, brokers sq. off the trades to stop losses to the shopper," says Vikas Singhania, executive director, alternate smart on-line.

but when the trades occur in the previous couple of minutes, as in Gupta's case, the dealer cannot do so much.

Brokers aren't clear why the taxation differs.

Some say it can be a penalty by means of the exchanges. They point that that the way in which STT is calculated on expiry of contract can impression your entire financial gadget -- now not simply the dealer.

Umesh Mehta, head of research, Samco Securities, explains: STT is deducted by the dealer after the change and handed on to the inventory exchanges. If their customer does no longer come up with the money for to pay the STT, it can be the brokers' accountability to pay.

If a broker does now not have the desired internet worth, he can go bankrupt.

"I may get best 3,000 so much. i would have simply offered 20 times the contracts, if available, as i assumed it used to be an arbitrage," says Gupta.

In this kind of case his tax legal responsibility could be around Rs four.eight crore.

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