SEBI Reports Disclosed Increasing Losses in F&O During FY22 to FY24

A recent report by the Securities and Exchange Board of India (Sebi) revealed significant losses incurred by individual traders in the equity futures and options (F&O) segment between FY22 and FY24. A staggering 91.1% of individual traders suffered losses in FY24, with the average loss per trader amounting to ₹1.20 lakh. Over the period from FY22 to FY24, a total of 11.3 million traders collectively lost ₹1.81 trillion. Only 7.2% of these traders reported making profits during this period, underscoring the challenging landscape for retail investors in the F&O market.

Institutional Traders vs. Retail Investors: A Stark Contrast

In contrast to individual traders, institutional investors such as foreign portfolio investors (FPIs) and proprietary traders enjoyed significant profits in FY24. FPIs made ₹28,000 crore in profits, while proprietary traders earned ₹33,000 crore. Meanwhile, retail traders and others combined incurred a net loss of more than ₹61,000 crore in FY24, before factoring in transaction costs. This highlights a growing disparity in performance between institutional traders and individual market participants.

Surge in Young Traders: A Cause for Concern

The profile of F&O traders is also shifting, with a notable increase in younger participants. The proportion of traders under 30 years old rose sharply from 31% in FY23 to 43% in FY24. Alarmingly, nearly 93% of these young traders experienced losses in FY24, which is even higher than the overall loss rate of 91.1%. Furthermore, low-income traders—those earning less than ₹5 lakh annually—accounted for 76% of all F&O traders in FY24 and represented a disproportionately high percentage of the loss-making group. This trend suggests that a significant portion of inexperienced and financially vulnerable traders are participating in high-risk F&O trading.

The Need for Enhanced Investor Protection

The overwhelming losses among individual traders have raised concerns about investor protection, a core mandate of Sebi. In response, Sebi has implemented several measures to mitigate excessive speculation in the F&O segment and safeguard retail investors. These measures include:

• Curb on Weekly Options Contracts: Sebi has limited the number of weekly expiry options contracts to just one per exchange, aiming to reduce the frequency of speculative trading.
• Increase in Derivatives Contract Size: Starting from November 20, the minimum contract size for various derivative contracts will be raised from ₹5 lakh to ₹15 lakh. This move is intended to increase the cost of speculation and discourage retail participation in high-turnover, speculative trades.
• Upfront Collection of Options Premium: Sebi has mandated that trading members (TMs) collect upfront premiums from option buyers. This measure aims to curb intraday volatility and prevent TMs from allowing clients to take positions without proper capital commitment.

Conclusion

In summary, while institutional investors continue to profit from the F&O market, a vast majority of retail traders, particularly younger and low-income participants, face significant losses. Sebi’s recent measures aim to curb excessive speculation and protect investors, but more steps are needed to ensure that F&O trading is not misused as a speculative tool. Education, stricter participation criteria, and a rethinking of contract structures could all contribute to a more balanced and sustainable F&O market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.