Nine out of 10 individual F&O traders lost money in FY24, Sebi study reveals

Nine out of 10 individual traders lost money in the futures and options (F&O) segment of the stock market during FY24, a study by the regulator showed, underscoring its concerns over speculation by retail investors.

The report released by the Securities and Exchange Board of India (Sebi) on Monday revealed that the number of individual traders in the F&O segment who incurred losses widened to 91.1%—about 7.3 million. This study follows Sebi's January 2023 report, which found that 89% of individual F&O traders lost money in FY22.

An estimated 11.3 million unique individual traders collectively lost ₹1.81 trillion during FY22-FY24, with FY24 alone accounting for ₹750 billion in net losses. The regulator’s current analysis focuses on profit and loss patterns for individual traders in the F&O markets from FY22 to FY24 and in all investment categories for FY24.

Only 7.2% of individual F&O traders turned in a profit over the three-year period, with just 1% taking home earnings of more than ₹1 lakh after accounting for transaction costs. More than 75% of the lossmakers persisted with trading in the F&O segment despite making losses in the preceding two consecutive years, Sebi said in the report.

Also Read: Market constituents hope for change in Sebi's derivatives plans

Index option volumes on the National Stock Exchange, which has a market share of over 90%, surged almost 13-fold to ₹138 trillion in FY24 from ₹10.8 trillion in FY20. This brought the market segment under Sebi’s radar, with chairperson Madhabi Puri Buch remarking that the surge in derivatives trading had become a macro issue because household savings were going into speculation instead of capital formation.

The latest Sebi study showed that foreign portfolio investors (FPIs) and proprietary traders profited during FY24. Proprietary traders recorded ₹330 billion in gross profit, while FPIs earned ₹280 billion.

Young traders

Demographically, the report noted that half of the F&O traders in FY24 came from four states - Maharashtra (1.88 million or 21.7%), Gujarat (1.01 million or 11.6%), Uttar Pradesh (930,000 or 10.7%), and Rajasthan (540,000 or 6.2%).

Sebi also highlighted the growing participation of traders under 30, which jumped to 43% in FY24 from 31% in FY23. However, 93% of these young traders faced losses, higher than the overall average of 91.1%. Additionally, over 75% of the individual traders (6.54 million) had an annual income of less than ₹5 lakh in FY24.

Also Raed: Sebi’s right about the derivatives boom: The market’s tail mustn’t wag the dog

Sebi has proposed seven measures to strengthen the index derivatives framework for increased investor protection and market stability. The first recommendation is to increase the contract value from ₹5-10 lakh to ₹15-20 lakh initially, and to ₹20-30 lakh after six months. The second measure involves raising the upfront margin on sellers. The third step involves cutting the number of weekly expiries to just one from the current five per exchange.

The other measures include widening the price intervals at out-of-the-money option strikes; removal of the calendar spread margin benefit on the day of weekly expiry; intraday monitoring of position limits to ensure participants don’t exceed the set limit by the exchange during a trading session and brokers collecting margins from options buyers upfront instead of at the end of the day.

Also Read: F&O trading: Do retail investors really need Sebi's big brother oversight?