The Herd Trap: Why Everyoneʼs Becoming a Trader (and Losing Money)
Everyone wants to be a trader now. Not an investor. A trader.
You hear it everywhere. F&O, banknifty, scalping, theta decay. Telegram groups. YouTube posts. Reels claiming ₹8,000 in five minutes.
And so you start to believe it too. That this is what smart money looks like. That if you are not in the markets, you are missing out. That trading is how wealth is built.
But that belief rarely comes from your own analysis. It comes from watching others.
The Illusion of Consensus
There is a name for this: social proof. When we are unsure, we look around and follow others, especially when they seem confident. In behavioral finance this is herding. In psychology it is called informational conformity. It is not new. But today, it moves at the speed of social media.
Friends posting profit screenshots. Influencers flashing winning trades. Your brain reads it as normal. Most traders are winning. This is the game.
What you do not see: the ₹15,000 loss they did not post. The loan. The panic exit at 924. The margin call.
In FY24, SEBI found that 91.1 percent of individual F&O traders lost money, with total losses of ₹75,000 crore for that year and aggregate losses of ₹1.8 lakh crore between FY22 and FY24¹. Just 7.2 percent made money, and only one percent earned more than ₹1 lakh after costs. Most kept trading despite multiple consecutive losing years.
This is the side of the herd no one shows.
The Problem Is Not Trading. It Is Imitation.
Trading is not the issue. Mimicking is.
Traders jump in without understanding:
Their available surplus capital
Their actual risk profile
What the product even is
Futures and options amplify outcomes. A 5 percent move against you might erase 50 percent of your capital. Yet many dive in without savings, borrowed funds, or test trades.
Herds form fast. Indiaʼs F&O market volumes surged thirteen-fold from FY20 to FY24², but losses among retail investors remained consistently high.
Why Herds Form So Easily
Herding is wiring.
In uncertainty, the brain takes shortcuts. If everyone runs one way, we assume it is right. In markets that is often the worst time to follow.
A 2023 behavioral experiment found that investors who observed others' outperforming trades took on significantly more risk themselves, often with worse outcomes³.
Herds amplify and then flip. If you copy blindly, you might ride the hype and crash.
Coattail Trading: Helper or Hidden Trap?
Copying smart traders can work. It gives exposure to strategies you have not built.
But not blindly.
You need to evaluate:
Track record: How long is the winning streak? Traders can post cherry-picked months
Risk approach: Were they low-risk scalps or high-bet options that can blow up?
Drawdowns: How much did they lose in bad months? A small streak can hide a deep drawdown
Trade frequency: High-speed trading may yield small gains to pros with tech you do not have
A 2021 meta-analysis of copy trading found that coattailing under strict criteria, such as audited portfolios and professional-grade transparency, could benefit newer traders⁴. But the advantage disappeared when copied blindly or emotionally.
Coattailing can be a learning tool until it is not. Always ask — what would this trade do to my risk profile?
Ask This Before You Follow
Before jumping into any trade or joining a herd, ask:
What percentage of my surplus capital is at risk?
Can I explain this instrument clearly to someone else?
If this trade goes wrong, can I still meet basic financial obligations next month?
Am I doing this because I believe in the strategy, or because everyone else is?
Clarity follows honest questions.
The Alternative Goes Slow, But It Works
Building lasting wealth is not flashy. It is consistent.
Start with a diversified long-term portfolio and basic asset allocation. Educate yourself on instruments. Trade only with surplus capital. Use rules, not reels.
If you want to trade F&O, simulate first. Risk small. Trade within defined loss limits. Keep learning.
Just because everyone else jumped off a cliff does not mean you should too.
