Retail investors should avoid trading in derivatives, says NSE chief Ashish Chauhan

Trading in derivatives should be avoided by retail investors due to the high amount of risk involved in the segment, said National Stock Exchange’s MD & CEO Ashishkumar Chauhan.

In his message to investors on Diwali 2023, Chauhan advised investors to be long-term players in the stock market, which he believes, is the best way to participate in India's growth story.

“Stock market is meant for long-term wealth creation. An unpleasant experience disheartens the affected investors to enter the stock market ever again. Trade in derivatives by retail investors should be avoided because of the high risk involved in derivatives. Be a long-term player. This is the best way to participate in India's growth story,” said Chauhan.

Also Read: Equity mutual fund inflows surge to ₹19,932 crore in October, SIP contributions at record-high: AMFI data

Trading in futures and options (F&O) in India has seen a sharp growth in recent years, especially after the COVID-19 lockdown, with a flock of new digitally savvy traders trying to make quick bucks in the stock market.

NSE’s options average daily turnover reached ₹318 trillion in October 2023. Amongst index options, Bank Nifty contracts had the largest share at 40.7% last month. Nifty index options had the second highest share at 34.3%, while FinNifty's share was 20%. 

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Derivatives trading on BSE also gained momentum as the exchange’s options volumes, which were non-existent between January–May 2023, had ADTV of ₹30 trillion during October, as per ICICI Securities.

NSE chief’s worries over the risks involved in derivatives hold true if we take a look at a report published by capital market regulator Securities and Exchange Board of India (SEBI) earlier this year.

The regulator’s study report shows 90% of the active traders in the equity F&O segment incurred losses in FY22.

Read here: Only 1 out of 10 F&O traders made profit in FY22; average loss stood at ₹1.25 lakh

Chauhan’s message came on the occasion of Diwali Muhurat trading, a tradition followed in the Indian stock market for decades. 

The Sensex rallied 355 points, or 0.55%, while the Nifty 50 jumped 100 points in the one-hour special Muhurat trading conducted on Sunday, November 12, on Diwali 2023.

“Muhurat Trading at the National Stock Exchange is a testament to our shared financial aspirations. In the heart of this vibrant marketplace, as the Diwali lights shimmer, we embark on a journey of careful choices and strategic investments. Each trade made during this auspicious time promises growth and the spirit of unity among investors,”

NSE encourages investors to deal only with registered intermediaries and refrain from dealing in unregulated products.

Meanwhile, Indian stock market indices were trading lower on Monday. 

At 10:40 am, the Sensex traded 375.80 points, or 0.58%, lower at 64,883.65, while the Nifty 50 was down 102.30 points, or 0.52%, at 19,423.25.

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