This expert believes recent STT hike may push retail traders to be more selective

The recent increase in securities transaction tax (STT) raises the cost of market participation and may prompt derivatives traders to reassess strategies such as position sizing and trading frequency, according to Tejas Khoday, co-founder and CEO, FYERS.Khoday said the STT hike functions as a cost applied on every trade regardless of its outcome, which changes the economics of frequent trading, particularly in futures and options.

“The STT hike is essentially a cost on participation, not on profits. It applies whether a trade makes money or not,” Khoday said.
He noted that higher fixed trading costs raise the break-even threshold for each trade.When costs rise, especially for smaller traders, the margin for error narrows, which may require adjustments in position sizing, trade frequency and holding periods to keep strategies viable.

Khoday said traders should evaluate strategies after accounting for all costs, including brokerage, transaction charges and statutory levies.

“If transaction charges, brokerage and STT collectively eat a large portion of expected gains, the strategy needs refinement,” he said.

Khoday also pointed to early signs of behavioural recalibration among retail market participants.Industry data has shown moderation in derivatives turnover growth in recent months following regulatory tightening and rising transaction costs.

At the same time, systematic investment plan (SIP) inflows into mutual funds have remained steady. Data from the Association of Mutual Funds in India shows monthly SIP contributions remained above ₹31,000 crore in December 2025 and January 2026.

According to Khoday, this indicates that investors are not necessarily exiting the markets but may be becoming more selective in how they deploy capital.

Higher transaction costs tend to make ultra-short-term trading less attractive and may lead some retail traders to reduce derivatives trading frequency or balance exposure with cash equities and longer holding periods, he said.

Khoday added that the trend does not necessarily indicate a structural shift away from derivatives trading but could reflect more deliberate participation as traders evaluate capital efficiency more closely.

From a personal finance perspective, he advised investors to assess trades on a net basis after accounting for statutory costs and transaction charges, while avoiding excessive trading and maintaining disciplined position sizing.

“In a higher-friction environment, efficiency matters more than activity,” Khoday said.