A Study on Overtrading Behaviour and Its Impact on Retail Investors

Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-11(I)| November 2025 192 A Study on Overtrading Behaviour and Its Impact on Retail Investors Nalini Mahesh Jadhav1, Dr. B.S Gite2 1(Ph. D. Research Scholar, Department of Commerce), People Education Society’s Dr. Ambedkar College of Commerce and Economics, Wadala, Mumbai, Maharashtra, India 2 (Ph. D. Research Guide Department of Commerce), Research Center: Swami Ramanand Teerth Marathwada University, Nanded (SRTMUN), Maharashtra, India Manuscript ID: JRD -2025-171140 ISSN: 2230-9578 Volume 17 Issue 11 (I) Pp. 192-196 Nov. 2025 Submitted:15 Oct. 2025 Revised: 25 Oct. 2025 Accepted: 10 Nov. 2025 Published: 30 Nov. 2025 Abstract Over-trading appears to be a very normal practice in the current stock market scenario. However, its severity is like a raging fire that is turning the hard-earned, lifelong wealth of investors into ashes. Over-trading is a major cause of financial loss and stress. Therefore, this study focuses completely on researching the behavioral causes and potential solutions for this issue. The stock market is currently a vital place that triggers the financial economy, and the majority of people in India who are trading in the share market are facing this serious problem. Hence, this research is extremely important and sheds light on these very aspects.When trading in the stock market, investors' emotions heavily influence their decisions. They often don't realize when they become trapped in the cycle of over-trading. After suffering substantial losses, the investor, who originally entered the market with the goal of growing their portfolio, becomes utterly frustrated and falls into severe financial stress and pressure. Keywords : hard - earned, financial loss, over - trading, influence Introduction: The Global Importance and Behavioral Pitfalls of Share Market Trading Globally, the share market is currently indispensable, as all financial activities, from the national to the global economy, are reflected in it. Due to the current economic environment, including factors like unemployment, and the potential for significant profits through intellectual and technical study, a large population is currently engaging in the share market. While the share market offers substantial opportunities for financial growth, accepting these offers and trading requires great discipline, which is not acquired overnight. Consequently, over-trading—a dangerous, ingrained habit—can prove very costly. This refers to the excessive and unwarranted buying and selling of stocks done without proper study or analysis. Retail investors and individual market participants often fall into the trap of over-trading by treating it like gambling or speculation, relying merely on luck or a guess, instead of applying the necessary analysis, long-term strategies, or technical analysis required for trading or investing. This demonstrates a clear lack of analysis on their part. Moreover, there are online trading applications that constantly dominate social media, promoting the idea of how one can become rich overnight or earn quick money. Many investors fall for this temptation, getting caught in the web of impulsive trading, and ultimately becoming victims of over-trading. Objectives of the Study The objectives for this research paper are as follows: 1. To Study the Psychological Drivers: There is a saying that the depth of the sea can be measured, but studying the inner workings of the human mind is very difficult. The turmoil and transactions occurring within the mind can be as intense as a volcanic eruption. Therefore, a crucial objective of this paper is to study the psychological factors that contribute to overtrading. Quick Response Code: Website: https://jrdrvb.org/ DOI: Creative Commons (CC BY-NC-SA 4.0) This is an open access journal, and articles are distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International Public License, which allows others to remix, tweak, and build upon the work noncommercially, as long as appropriate credit is given and the new creations ae licensed under the idential terms. Address for correspondence: Nalini Mahesh Jadhav, (Ph. D. Research Scholar, Department of Commerce), People Education Society’s Dr. Ambedkar College of Commerce and Economics, Wadala, Mumbai, Maharashtra, India. How to cite this article: Nalini Mahesh Jadhav, B.S Gite(2025). A Study on Overtrading Behaviour and Its Impact on Retail Investors . Journal of Research & Development, 17(11(I)), 192-196. Original Article Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-11(I)| November 2025 193 2. To Understand the Impact of Wealth on Psychology: The income and earnings of every investor represent significant wealth. Another key objective is to study and understand how the potential impact of this wealth (both gains and losses) affects an investor's human psychological or mental behavior and subsequently influences their overall trading activity. 3. To Propose Concrete Solutions for Behavioral Change: Most importantly, this research aims to analyze and suggest concrete measures and strategies to reduce the behavior of over-trading. This includes providing effective solutions to overcome the "ghost of over-trading," which leads to financial, portfolio, and psychological damage, and proposing actionable recommendations based on detailed analysis. Literature review 1. Overtrading and Working Capital Stress in Growing Firms" Published in: Journal of Business & Accounting Summary: Explains how firms that grow faster than their financial capacity face cash-flow shortages, declining liquidity and high short-term debt, leading to overtrading. 2. "Overtrading: A Major Cause of Small Business Failure" Published in: Small Business Economics Summary: Shows how rapid sales growth without adequate capital causes operational strain in SMEs, resulting in poor cash management and insolvency risk. 3. "Working Capital Management and the Risk of Overtrading "Published in: International Journal of Finance and Economics Summary: Empirical study linking inefficient working capital cycles (slow receivables and high inventory) to a higher probability of overtrading. 4. "Financial Ratios as Indicators of Overtrading" Published in: Accounting and Finance Review Summary: Identifies falling current ratios, rising debtor days, and increasing reliance on overdrafts as key early warning signs of overtrading. 5. "Overtrading Behavior in Financial Markets" Published in: Journal of Behavioral Finance Summary: Defines investor overtrading as excessive trading driven by overconfidence, leading to lower net returns despite high activity. 6. "Overconfidence and Overtrading Among Retail Investors" Published in: PLOS ONE Summary: Finds that traders with higher overconfidence and stronger emotional triggers tend to trade more frequently, harming long-term returns. 7. "The Effects of Market Sentiment on Intraday Overtrading" Published in: Finance Research Letters Summary: Shows that rapid shifts in online sentiment and news increase unnecessary intraday trading volume and volatility. 8. "Preventing Overtrading Through Cash Flow Forecasting" Published in: Journal of Financial Management Summary: Suggests that better forecasting, credit control and inventory planning reduce the risk of overtrading in high-growth firms. Scope of the Study The scope of this research paper is centered on investigating the behavioral focus and assessing its significant detrimental impact on Indian retail investors. It is particularly important to consider the Indian youth, who are extensively using online trading platforms like Zerodha and Angel One. The easy availability of these apps and the resulting attraction to quick money—money earned without any significant intellectual or physical effort—has shaped a specific, potentially flawed, mindset regarding wealth creation. A major focus of the study is to understand why the Indian public, despite actively participating in the share market, is consistently getting caught in massive loss cycles. Given the depth of this issue and the specific focus on Indian investor behavior, a dearth of extensive research papers on this subject is currently observed. Therefore, the scope of this study is primarily limited to secondary information available on the topic. Research Methodology The research methodology in this paper is based on descriptive research. No numerical data has been included. The methodology relies entirely on secondary data, drawing upon studies of articles, reports, and online observations. Overall, the research methodology was adopted in this manner to present a conceptual financial perspective. Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-11(I)| November 2025 194 Concept of Overtrading Overtrading can be defined as a scenario where there is excessive buying and selling of stocks without any proper analysis or established strategies. In the absence of a concrete plan or rational thought process, trading decisions are driven purely by emotions or a lack of understanding. This often resembles gambling, where trades are executed based on luck rather than logic. Key Drivers and Behaviors:  Chasing Volatility: Traders often feel compelled to trade simply because the market is moving fast. They believe there is a higher opportunity to make money, so they enter trades based on the "flow" of the market without understanding the underlying fluctuations.  Constant Switching: Traders often enter the market to make quick profits and switch rapidly from one stock to another. This creates unnecessary complexity and leads to excessive transaction volume.  Social Media Influence: Currently, there is a surge of stock market content on platforms like YouTube and social media. "Finfluencers" often spread rumors or share information without deep knowledge. This confuses traders, creates mental chaos, and misguides them, contributing significantly to the problem of overtrading.  Psychological Factors: Overtrading is often fueled by impulsiveness, overconfidence, excitement, or the Fear of Missing Out (FOMO)—the fear that if a trade isn't executed immediately, a specific market move (candle) will be missed forever. The Consequences: This approach does not reflect any fundamental change in a long-term portfolio. Instead, it is a reaction to market chaos and rumors. The negative impacts include: 1. Diminished Returns: Excessive trading eats into investment returns (often due to transaction costs and poor entry/exits). 2. Increased Stress: It significantly raises the trader's stress levels. 3. Loss of Capital: Profits that could have been accumulated slowly and steadily over the long term can be wiped out in moments due to one wrong, impulsive move. 4. Recovery Time: Once the capital is lost, rebuilding the portfolio can take a significant amount of time. Behavioural Analysis of Overtrading This section outlines the behavioral patterns and psychological factors that contribute to the phenomenon of overtrading. 1. Excessive Overconfidence: Investors often harbor an unfounded belief that they can consistently "beat the market." This overconfidence leads to excessive buying and selling, as they overestimate their predictive abilities. 2. Fear of Missing Out (FOMO): A significant driver is the anxiety caused by seeing others make profits. Traders feel they must act immediately to secure quick gains. Consequently, trades are executed without proper analysis or rational thought, often resulting in losses rather than the desired profits. 3. The Gambling Attitude: Some traders approach the market with a gambling mindset. They deliberately ignore risks and focus solely on one side of the equation—the potential for profit—while living in an illusion. The possibility of loss is willfully neglected. This one-sided perspective fuels overtrading and inevitably leads to financial loss. 4. Revenge Trading (Chasing Losses): A critical aspect of overtrading is the desperate attempt to recover previous losses. Instead of stepping back, traders become aggressive, abandoning all prudence/caution in a hurried attempt to make money back. This reactive behavior compounds the damage, increasing losses rather than recovering them. 5. Reaction to External Triggers: Situations often spiral out of control when decisions are based on impulsive reactions to app notifications, news flashes, or algorithmic recommendations. Falling prey to these external influences leads to poor decision-making and subsequent losses. 6. Herd Mentality: Due to the habit of following the crowd, traders often look at what others are doing rather than exercising independent thought. By adopting this "herd mentality" and failing to do their own research, they harm their own portfolios. 7. Unchecked Greed: Even when a trader has secured decent profits, greed can take over. Driven by the desire for more, they ignore market symptoms and global cues. This leads to "mindless" trading that is completely opposite to disciplined strategies. Conclusion on the Concept Overtrading has become a normalized but destructive concept where aggressive buying and selling occur without rationale. It is a trap that many traders find impossible to escape. Impact of Overtrading on Retail Investors The Adverse Effects of Overtrading on Retail Investors This section examines the severe consequences of overtrading on retail investors. Functioning like a "silent killer," overtrading gradually deteriorates a trader's financial, mental, and physical well-being. Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-11(I)| November 2025 195 1. Erosion of Capital (Capital Loss): The primary consequence is the rapid depletion of invested capital. Retail investors often enter the market with small amounts of hard-earned money, aiming for decent returns. However, due to poor timing, impulsive decision-making, and a lack of risk management, aggressive trading erodes the principal investment. Instead of generating returns, the focus shifts to survival as the original capital vanishes. 2. The Burden of Transaction Costs: Traders often overlook the cumulative impact of costs associated with highfrequency trading. Every transaction incurs brokerage fees, GST, taxes, and platform fees (charged by brokers like Zerodha, Angel One, etc.). ● The "Net" Reality: While a trade may appear profitable on screen, the net amount realized the next day is often significantly lower due to these deductions. Overtrading leads to excessive "churning" of the account, where profits are consumed by fees. 3. Psychological and Physiological Stress: Overtrading creates immense financial pressure and takes a toll on mental health. ● Constant Anxiety: The constant monitoring of market volatility (e.g., watching every candlestick move) triggers fear and anxiety. ● Physical Symptoms: Large positions combined with market fluctuations can lead to physical symptoms such as increased heart rate, blood pressure issues, and mood swings. This state of constant stress impairs rational decision-making. 4. Short-Termism (The Hare and the Tortoise Analogy): Overtrading is fueled by a desire for quick, short-term gratification, often at the expense of long-term wealth creation. ● Ignoring Fundamentals: Investors ignore fundamental analysis and long-term portfolio building. ● The Fable: Similar to the fable of the Tortoise and the Hare, traders who rush aggressively (the Hare) to "win the race" often lose. Conversely, the "Tortoise" approach—slow, steady, and disciplined—is ignored, leading to failure in the stock market. 5. Absence of Learning and Analysis: A key characteristic of overtrading is a stagnant learning curve. Ideally, one should continuously learn and analyze past performance. However, overtraders rarely conduct post-mortem analyses of their losses. Instead of identifying the root causes of their errors, they repetitively make the same mistakes, driven by the urge to trade rather than the urge to learn. 6. Poor Discipline and Strategic Void: Success in the stock market demands strict discipline. Overtrading represents a total collapse of discipline and the absence of strategy. ● The Self-Made Trap: For those seeking income, undisciplined trading is akin to digging a "well of loss" for themselves. Once they fall in, escaping becomes difficult. This behavior turns potential opportunities into financial disasters due to a lack of self-control and proper planning. Findings Major Research Findings on Overtrading Causes The study reveals several key factors contributing to overtrading among retail investors, highlighting psychological, structural, and educational deficiencies. 1. Emotional and Psychological Vulnerability (The Root Cause) The major cause is identified as emotional and psychological weakness. While market conditions are undeniably complex—fluctuating due to global events, national/international news, and large operator activities—it is the investor’s own negative entanglement with these factors that causes loss. The individual's mental state, negative bias, and compromised thought process lead directly to overtrading. 2. Impact of Digital Accessibility and Over-reliance on Trading Platforms Young investors, in particular, place excessive trust in and are easily influenced by trading applications (such as Zerodha or 5Paisa) promoted heavily on social media. Easy Functionality: These platforms are built for ease of use and instant access, drastically lowering the barrier to entry. Lack of Control Perception: Traders fail to recognize that the easy functionality and high frequency of trading benefit the platforms (via commission/fees). Driven by the desire for quick profits, individuals begin trading without proper due diligence and quickly fall into the overtrading trap. 3. Deficiency in Financial Literacy There is a significant and widespread absence of proper financial education among the trading population. This fundamental deficiency leads directly to poor investment decision-making. As a result, the financial risk is unnecessarily escalated, making the recovery from subsequent economic setbacks extremely challenging. Journal of Research and Development A Multidisciplinary International Level Referred and Double Blind Peer Reviewed, Open Access ISSN : 2230-9578 | Website: https://jrdrvb.org Volume-17, Issue-11(I)| November 2025 196 4. Erosion of Discipline and Caution A noticeable lack of disciplined behavior and caution is evident. This decline is largely driven by behavioral factors: FOMO and Greed: The Fear of Missing Out (FOMO) and the intrinsic greed to maximize profits quick. Influence of Quick Money: The powerful influence of the perception that trading offers instant wealth. 5. Impact of Low Capital Requirement (Accessibility) Modern trading applications allow individuals to initiate trades with minimal capital. Many traders start with a small investment, driven by the false and unstudied expectation of multiplying their money rapidly. They gradually increase their capital without any rigorous analysis or formal study, which leads to repeated overtrading and compounding their financial losses. Recommendation 1. While investing in any of these, whether in fundamentals or in option trading, there should be a proper clear investment plan in which you should consider what your goal is, how much time period you want to invest for or what kind of return you want and how much risk you can take together. We should prepare a proper plan by considering all these things. 2. We should avoid checking the market constantly because constant checking increases our fear and creates greed in it and due to this, over-trading can occur. Therefore, it is necessary to take a break sometimes. Trade only when necessary. There are moments in the market that are happening suddenly. Avoid buying and selling too much and trade only when really necessary. 3. Another important recommendation is that these trading apps are created in a very easy way in which any person can easily trade and can exit as many times as he wants. Since it is very easy to access, it has some good functions like stop loss and limit, which can prevent your emotional decisions and reduce the amount of trading you do. 4. After that, there are some important coaching institutes or coaching apps that provide you with some basic financial knowledge. By learning about the stock market, you can get knowledge about trading in a good way. It is very important to take it. It is very important to have financial knowledge about how to reduce stress and financial loss without doing excessive trading. 5. After that, you should prepare a fixed monthly trading budget or a budget, in which you can trade according to how much risk you can take. So that you can prevent the losses that will happen while training by breaking discipline and becoming emotional. That budget is very important and most importantly, a lot of money. References 1. Anatomy Of Overtrading — Chakraborty, Kiran Sankar (Mittal Publications, 2003). This book analyses various aspects of overtrading: its symptoms, causes, consequences, and working capital implications in corporate business. 2. What leads to overtrading and under‑diversification? Survey evidence from retail investors in an emerging market — Phan, T. C.; Rieger, M. O.; Wang, M. (2018), Journal of Behavioral and Experimental Finance. Examines behavioral and demographic drivers of overtrading among retail investors. 3. Is There Any Overtrading in Stock Markets? The Moderating Role of Big Five Personality Traits and Gender in a Unilateral Trend Stock Market — Zhang, J.; Wang, H.; Wang, L.; Liu, S. (2014), PLOS ONE. Studies overtrading behavior in simulated stock-market settings and links it with personality traits and gender. 4. Internet sentiment exacerbates intraday overtrading, evidence from A‑Share market — Peng, Yifeng (2024), arXiv preprint. Investigates how investor sentiment affects intraday overtrading in the Chinese A-share market. 5. What Is Overtrading? Causes, Risks, and How to Avoid It — AccountingInsights (2025). A recent overview of overtrading in business settings, highlighting causes, risks, and mitigation strategies. 6. Overtrading — Tutor2u Business Reference (updated 2021). A concise summary explaining overtrading for business students: causes, symptoms and why even profitable firms can overtrade.