F&O traders lost ₹1.81 lakh cr. in three years: SEBI study

Last Updated25/09/2024

More than 1 crore futures and options (F&O) traders lost ₹1.81 lakh crore in F&O during FY22- FY24, according to a Securities and Exchange Board of India (SEBI) study.

A recent study by the Securities and Exchange Board of India (SEBI) has revealed that more than 1 crore Futures and Options (F&O) traders in India incurred total losses amounting to ₹1.81 lakh crore between FY22 and FY24.
In FY24 alone, traders lost approximately ₹75,000 crore. The study, titled "Analysis of Profits & Losses in the Equity Derivatives Segment (FY22-FY24)", highlights the significant financial risks involved in F&O trading for individual investors.

In FY24, over 91% of individual F&O traders, roughly 73 lakh traders, lost money.
The losses are disproportionately higher among younger traders. In FY24, 43% of traders were under 30, and 93% of these young traders incurred losses.

Even after losing money for two consecutive years, 75% of traders continued to trade, showing a high level of persistence despite mounting losses.

Three-fourths of the individual traders who incurred losses had declared an annual income of less than ₹5 lakh, further indicating that most traders were likely retail investors with limited financial capacity.

While individual traders suffered significant losses, proprietary traders and foreign portfolio investors (FPIs) made gross profits of ₹33,000 crore and ₹28,000 crore, respectively. Much of these profits were driven by "algo entities," which utilize algorithmic trading, giving them a competitive edge over individual traders.

Futures Contracts: Legally binding agreements to buy or sell an asset at a predetermined price on a future date. If the asset’s value drops by the contract’s expiration, the buyer incurs losses.
Options Contracts: Contracts that provide the buyer with the right, but not the obligation, to buy or sell an asset at a specified price before a set expiration date. The buyer pays a premium for this right.

The study also found that apart from losses in F&O instruments, individual traders spent about ₹50,000 crore on transaction costs, with half of this going towards brokerage charges. Other significant costs included:
₹13,800 crore in Securities Transaction Tax (STT), Stamp Duty, and Goods and Services Tax (GST).
On average, each trader spent ₹26,000 in transaction costs in FY24.

Options trading proved to be more financially damaging, with over 90% of options traders losing money, compared to 60% of those trading in futures.

The significance of these findings is underscored by SEBI’s recent regulatory changes aimed at protecting investors from excessive losses in F&O trading. These reforms come after the study's publication and aim to tighten regulations and safeguard retail investors from the highly volatile nature of derivatives trading.