A recent study by the Securities and Exchange Board of India (SEBI) has revealed that approximately 93 per cent of individual traders in the equity futures and options (F&O) segment experience losses. The report highlights that over 9 out of 10 traders continue to incur losses despite participating in this market for consecutive years. Moreover, more than 75 per cent of those who faced losses kept trading in F&O, showing persistence despite setbacks.
Between 2021-22 and 2023-24, the total losses among individual traders surpassed Rs 1.8 lakh crore. F&O, which stands for Futures and Options, are financial derivatives that allow speculation on asset price movements without the need to own the underlying asset. These assets can include stocks, bonds, commodities, currencies, indices, exchange rates, and even interest rates.
SEBI has expressed concern about the speculative nature of trading in the F&O market, noting that such activities stray from the original intent of these financial instruments. The latest study follows a previous report published in January 2023, which found that 89 per cent of individual F&O traders lost money in 2021-22.
As individual participation in equity and derivatives markets grows, SEBI aimed to analyse the profit and loss patterns of F&O traders over the past three years, and specifically for all investor categories in 2023-24. On average, individual F&O investors incurred losses of approximately Rs 2 lakh during this period, including transaction costs.
The top 3.5 per cent of loss-making traders, about 4 lakh people, faced average losses of Rs 28 lakh per person, while only 1 per cent of individual traders earned profits exceeding Rs 1 lakh, after accounting for transaction costs.
In contrast, proprietary traders and Foreign Portfolio Investors (FPIs) recorded substantial profits, with Rs 33,000 crore and Rs 28,000 crore in gross trading profits, respectively, during 2023-24. SEBI noted that a large portion of these profits—97 per cent of FPI profits and 96 per cent of proprietary trader profits—were generated through algorithmic trading. Meanwhile, individuals and other entities saw losses exceeding Rs 61,000 crore in the same fiscal year.
On average, individual traders spent Rs 26,000 on F&O transaction costs in 2023-24. Over the three years, these costs added up to nearly Rs 50,000 crore, with brokerage fees accounting for 51 per cent and exchange fees for 20 per cent of the total.
The study also found that the proportion of young traders (below 30 years) in the F&O segment grew from 31 per cent in 2022-23 to 43 per cent in 2023-24. Additionally, traders from cities beyond the top 30 (B30) accounted for more than 72 per cent of the total F&O trader base, a higher percentage than mutual fund investors, 62 per cent of whom come from B30 cities.
A large share of F&O traders, over 75 per cent, reported annual incomes of less than Rs 5 lakh. Despite recurring losses, many traders in this income bracket continued to trade in F&O.
The Economic Survey, presented in Parliament in July, raised concerns over the growing derivatives market in India and underlined the need for increased financial awareness. The survey stressed the importance of educating investors about the low or negative expected returns from derivatives trading.
(ANI)