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Read to know how a country benefits from stock traders whether they are long term investors or short term traders.
Due to FED not changing rates (especially not increasing rates) we saw markets rally like fire yesterday. Today they are again stable and not going anywhere. Remember what I said yesterday?
Emotions and media have a bigger role to play in stock markets than economy of a country. I would give 50% to emotions, 30% to media and only 20% to economy for rise and fall of markets the world over.
Yesterday emotions were high so there was a rally. Today no news, no emotions, so nothing to do in markets. Isn’t the news still fresh that FED has kept rate unchanged? So why there is no rally today? Because 50% of what makes the markets move is absent – there are ZERO emotions in play in today markets.
It has slightly fallen down because all those who made money in yesterday’s rally are booking their profits seeing no more rally.
This is a useless short term traders life – one day profit another day loss – ZERO fun, full of stress and no money at the end of the month. After one year again look for a job.
This is the reason they are called SHORT TERM TRADERS – it is a very apt term. Their life as a trader is short term, then they stop trading and start looking for a job.
What happens to Long Term traders? They keep trading for long term and keep making money for long term. Short term traders come in the market give a great gift called “money” to long term traders – long term traders take that money and say “thank you” to short term traders and then short term traders tell them “good bye” and leave. 🙂
Then new short term traders join the markets. The story repeats again. This keeps happening for years. Long term traders remain the same whereas short term traders come with cash and go out without cash.
Myself and all my clients we are all medium term traders – we have best of both world. Long term traders make huge profits but it comes after a few months or even years. We make small but consistent profits in a few days. Over all long term traders make money, medium term traders also make money, while short term traders lose money.
You must have heard that 95% of traders are losers. Almost all of that 95% traders are short term traders, rest of the 5% traders are either long term or medium term traders.
If you are a short term trader I highly recommend that please do my course, at least I will show you the path to trade peacefully and make small profits in a few days. Yes too much trading is not involved so this will also make sure you save money in brokerage plus keep making money consistently. If you want to join the 5% club of traders who make money then do my course, if you love losing money and want to remain in that 95% club then do whatever you want.
Anyways coming back to how a country benefits from stock traders whether long, short or medium term traders.
When the news came in that FED will not increase rates people with a lot of money to invest have nowhere else to go except the stock markets for a better return. That’s the reason there was a rally yesterday.
Fact is if low rate for a Fixed Deposit is there which is not very attractive, investors will invest in stock markets for a better return. Do not forget that in most countries income tax in stock investing is much lower than income tax in Fixed Deposit in banks.
Governments do this so that people keep investing in stock markets. Otherwise if FD returns are great which is guaranteed, no one would buy an IPO (Initial Public Offer), or invest in stock markets and buy shares of a company.
In India FD rate is around 7.5% today for an year. Imagine FD rates increasing to 15% a year. Not a single person will invest in stock markets even mutual funds. Everyone will invest in Fixed Deposits. Stock markets will tank which is not good for the companies doing business and listed in stock markets. Not a single IPO will ever come.
If no one invests in stock markets then no company would be able to take money out of the stock markets and increase their business and give jobs which helps in a countries development.
Keep this in mind that taking money from stock markets is not a loan for these companies. They throw an IPO, take millions of dollars from the public through IPO and never return. When you sell a share of a company it is not the company that gives you back the money, it is some other trader like you who buys the stock from you. Whatever money comes from IPO valued in crores is for the company to keep and expand its business. The only thing it gives back to the country is generate employment which helps in development of a nation.
So indirectly when you are buying a stock you are helping in development of a company directly and your country indirectly. Since you are doing a good job, government gives you a tax free return on profits if you keep that stock for just one year.
Why one year why not short term? Two reasons:
1. Technically the market makers like SEBI, NSE, BSE, MCX do not want short term trading and to discourage them 1 year is the minimum investment required to get a tax free return on profits made. Note that the company does not care if its stocks keep changing hands in 1 year or 1 second because it got its money anyway, but market makers do care as they want people who invest in stock markets to make money. They are intelligent people and they know if investors are invested in good companies for 1 year at least there is a very high chance that they will profit, else there is a very high chance they will lose money so 1 year is being lured.
2. Fact is here or there a country needs money for development. And how can they get money from its people? Direct or Indirect taxes. Now when you buy a stock and keep it for one year it is obvious that had you kept than in a Fixed deposit you would have made 7-8% in that one year but you have to pay taxes on that. In short FDs are not tax free because when you do an FD directly or indirectly you are not helping your country but helping to increase business of a bank or that financial institution. Your FD money is given as personal loan, home loan, car loan or business loan to a person or a company to make more money. The banks give you 7 or 8% in return for FD, but charge more than 12% to people who take a loan from them. The difference of 4 or 5% is the banks profits not the county’s profit so the government has kept a tax on Fixed Deposit even if done for 5 years.
However if you buy a stock or invest in an IPO, you are helping a big company to grow which will generate employment which is good for development of a country therefore its tax free. But then how will the government make money if everyone is invested for 1 year? No it will not.
Short term players fill the gap. 🙂
See how even a country benefits from short term or long term stock market investors.
For short term equity investors you have to pay tax on your profits for the entire year. Short means holding a stock for less than 1 year. Of course you cannot hold a derivative like Option or Futures for 1 year so you have to pay a tax on the profits.
As far as I know in stock markets there are short terms taxes, as written above and long term gains. I am not an tax expert as my tax filling is done by an expert and frankly I do not ask him any question as he is very good in his job.
But if anyone of you is an tax expert reading this please email me how taxes are calculated on derivative profits in India. I will do research and write another post someday.
A lot of people have asked me this question but since I do not know, I am unable to help them. By telling me you will help a lot of people so do please tell me if you know how in India derivative profits or loss are being taxed.
Coming back, short term traders in reality give more taxes than long term traders as long term stock investors either through mutual funds or direct investing do not pay tax to the government at all. This the government also knows therefore they tax the short term traders.
It does not matter if only 5% of short term traders make a profit. Fact is take an overall view ultimately the government makes money from stock markets from short term traders and the country benefits from the long term investors. So both help the country to develop.
1. Long term investors help their country develop indirectly, and
2. Short terms traders help their country develop directly by paying taxes.
Just to add that all profit making companies pay taxes too to help their country develop, so indirectly long term investors are also paying taxes. This is the reason the Dividends are not taxed as the company sends dividends only after paying taxes. So if Dividends are taxed it will be double taxation which is injustice, so it’s not taxed.
But the fact is the worst lot are the short term traders.
Why because those 95% short term traders who lose money are neither taking their family and future forward nor taking their country and its future forward.
In God’s eye it’s a SIN.
There is nothing wrong in trading the stock markets short term but try to use your brains and be in that 5% who are winners. They make money and take their families and future forward and also their country forward.
This is what your Government wants, this is what you and your family wants, this is what the world wants and this is what God wants.
The purpose of my site is only this – to educate short term traders. What did I get by taking two hours to write this article? Nothing. But I know someone will benefit. If yes my job is done else I wasted my time.
But anyway I am so happy that I am trying my best, the results are not in my hands. It is God’s hands. Our job is to work hard and show people the correct path. To follow that path or not is your choice.
So I conclude with this simple sentence.
Work hard, get knowledge and trade well. You will not only take your family forward but your also country forward.
Thanks For Reading.
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Dilip Shaw, Founder
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