Futures and Options Trading: A Deep Dive into Trader Losses
Introduction: A recent report from the Securities and Exchange Board of India (SEBI) has shed light on the staggering loss experienced by traders in the futures and options (F&O) segment over the past three financial years. With 93 percent of individual traders losing a staggering ₹1.8 lakh crore, the data raises concerns about the sustainability of retail trading in this volatile market.
The Lost Capital
According to SEBI’s analysis, out of more than 1 crore individual F&O traders, a shocking 93% registered losses during FY 2022 to FY 2024. This translates to an average loss of approximately ₹2 lakh for each trader, including various transaction costs. Notably, among the cohort suffering losses, about 3.5%—equating to around 4 lakh traders—suffered significantly higher average losses of ₹28 lakh. Only 1% of traders were fortunate enough to make profits exceeding ₹1 lakh during this period.
Comparison with Professional Traders
In stark contrast to the losses incurred by individual traders, proprietary traders and foreign portfolio investors (FPIs) reported enormous profits in FY 2024. Individual F&O traders saw cumulative losses exceeding ₹61,000 crore, while proprietary traders secured gross trading profits of ₹33,000 crore and FPIs realized ₹28,000 crore. It is noteworthy that a vast majority of these profits resulted from algorithmic trading, with 97% of FPI profits and 96% of proprietary traders’ profits stemming from algorithm-driven strategies.
Transaction Costs: A Heavy Burden
| Cost Type | Percentage |
|---|---|
| Brokerage Fees | 51% |
| Exchange Fees | 20% |
| Other Costs | 29% |
In FY 2024, individual traders spent an average of ₹26,000 on transaction costs alone. Across the three financial years surveyed, the total transaction costs reached a staggering ₹50,000 crore, with brokerage fees constituting over half of this expense, thereby squeezing traders’ overall returns.
Demographics of the Trader Community
The allure of F&O trading continues to attract younger traders, particularly those under 30 years of age. In FY 2024, this demographic grew from 31% to 43% of the total number of F&O traders. Interestingly, over 72% of these traders come from regions outside the top 30 cities, contrasting the 62% of mutual fund investors who are concentrated in urban centers.
The Financial Profile of Traders
More than 75% of individuals engaged in F&O trading reported an annual income of less than ₹5 lakh in FY 2024. Despite experiencing continuous losses, a significant majority—over 75%—of these traders are reluctant to exit the market, raising questions about trading psychology and the influence of hope and resilience against ongoing financial strain.
Conclusion
The findings from SEBI indicate that trading in the F&O segment poses significant risks for individual traders, with most encountering substantial financial losses. The appeal of quick profits often overshadows the reality of the market’s volatility. As traders continue to navigate this landscape, understanding the inherent risks and improving trading strategies will be crucial for survival and success in the future.
