Over/Under Trading

Over-trading refers to excessive buying and selling of financial instruments, often driven by emotions like greed or fear. It can lead to higher transaction costs and lower overall returns due to poor decision-making. Under-trading, on the other hand, occurs when traders or investors fail to take advantage of market opportunities, often due to a lack of confidence or over-caution. Both over-trading and under-trading can result in suboptimal portfolio performance.

Example

A day trader engages in over-trading by making multiple trades every day based on short-term market fluctuations, incurring high transaction costs that erode profits.