A recent report from Sebi has uncovered concerning trends in the equity futures and options (F&O) market, revealing significant losses faced by individual traders between FY22 and FY24. In FY24 alone, a staggering 91.1% of these traders saw negative returns, with the average individual loss reaching ₹1.20 lakh.
Over the span of three years, from FY22 to FY24, approximately 11.3 million traders experienced a total net loss of ₹1.81 trillion. Shockingly, only 7.2% of participants in the market managed to make a profit during this period.
Institutional Gains vs Retail Losses
While individual traders encountered significant losses, institutional players like foreign portfolio investors (FPIs) and proprietary traders saw impressive gains. In FY24, FPIs earned ₹28,000 crore, and proprietary traders gained ₹33,000 crore. In contrast, individual traders and other market participants faced a loss of over ₹61,000 crore, excluding transaction costs.
One alarming trend is the rising involvement of younger traders, particularly those under 30 years of age, in the Futures and Options (F&O) market. Their participation grew from 31% in FY23 to 43% in FY24, with a staggering 93% of these younger traders experiencing losses. Furthermore, low-income traders, earning under ₹5 lakh annually, accounted for 76% of F&O participants in FY24 and had the highest proportion of loss-makers.
This shift in market dynamics, particularly the participation of younger, low-income traders in the F&O market, raises important questions about risk management and financial education. TradeFX continues to monitor these trends and emphasizes the importance of informed trading decisions to avoid significant financial setbacks.
Sebi’s Measures to Address Retail Losses
In light of these concerning statistics, Sebi has implemented measures to curb speculative retail participation in F&O (Futures & Options):
- Restriction on Weekly Options Contracts: As part of the latest regulatory changes, exchanges are now allowed to offer only one weekly expiry options contract per week. This move is aimed at streamlining trading and enhancing market stability.
- Increased Derivatives Contract/Lot Sizes: Starting from 20th November, the minimum contract size for derivatives has been increased from ₹5 lakh to ₹15 lakh. This adjustment raises the cost of entry for traders, making it more challenging for speculative trading to thrive. It’s crucial for traders to understand how these changes impact their investment strategies.
- Upfront Premium Collection for Options Traders: In a significant shift, brokers are now mandated to collect the premium upfront from buyers of options contracts. This new rule is designed to reduce intraday volatility, particularly for speculative positions that lack sufficient margins. Traders must now adjust their approach to account for these upfront premium requirements.
Further Steps SEBI Could Consider
While current measures are a step toward improving investor safety, additional actions can be implemented to better protect retail investors in F&O (Futures & Options) trading. Here are some suggestions:
Investor Education Initiatives
It’s essential to educate retail investors on the true purpose of F&O, which should be viewed primarily as a hedging tool, not a means of investment. Collaborative efforts from Sebi, market institutions, and industry associations could play a vital role in spreading awareness about the risks associated with F&O trading.
Minimum Portfolio Size Requirement
Introducing a minimum equity portfolio size requirement of ₹10-15 lakh for individuals trading in F&O could ensure that participants have a solid understanding of investment principles. This could discourage individuals from treating F&O as a form of high-risk speculation or gambling.
Restricting F&O Trading to Underlying Exposures
Inspired by the Reserve Bank of India’s approach to currency derivatives, Sebi could consider limiting F&O trading to investors who already have exposure to the underlying securities. This move would reduce speculative trading and encourage more informed decision-making among investors.
Adjusting Weekly Expiry Dates
Currently, weekly expiry contracts run from Friday to Thursday, which benefits large institutional traders who take advantage of time decay during the weekends. By adjusting the expiry dates to a Monday through Friday schedule, Sebi could create a more balanced trading environment, allowing retail investors to compete more fairly.
By implementing these strategies, Sebi can reduce retail investor losses and encourage a healthier and more transparent trading ecosystem.
Empowering Retail Traders with Affordable and Accessible Trading Solutions
At TradeFX, we believe that trading should be accessible to everyone, no matter the size of your investment. Our platform is built to offer retail traders advanced tools and services that create a fair and level playing field, making trading more inclusive, efficient, and secure. Whether you’re trading with ₹1,000 or ₹10,00,000, we provide unique features designed to cater to the diverse needs of today’s modern traders. Here’s how our trading platform for small capital empowers you:
Sebi Report Reveals Troubling Trends in F&O Market: High Losses for Retail Traders
A recent report by Sebi has raised concerns about the equity futures and options (F&O) market, highlighting significant losses faced by individual traders between FY22 and FY24. In FY24, a staggering 91.1% of these traders suffered losses, with the average loss per individual amounting to ₹1.20 lakh.
Over the three years from FY22 to FY24, a total of 11.3 million traders experienced a combined loss of ₹1.81 trillion. Only 7.2% of traders managed to profit during this period, indicating the challenges facing retail investors.
Institutional vs Retail: A Clear Divide in F&O Market
While individual traders have faced severe setbacks, institutional players such as foreign portfolio investors (FPIs) and proprietary traders have seen significant gains. In FY24, FPIs earned ₹28,000 crore, while proprietary traders made ₹33,000 crore. In stark contrast, individual traders and other participants lost over ₹61,000 crore, excluding transaction costs.
Another worrying trend is the increasing involvement of younger traders in the F&O market. Traders under 30 now account for 43% of F&O market participants, up from 31% in FY23, with 93% of them incurring losses. Additionally, low-income traders (those earning less than ₹5 lakh annually) represent 76% of F&O participants and have the highest proportion of loss-makers.
Sebi’s Efforts to Protect Retail Traders
In response to these concerning statistics, Sebi has implemented several measures aimed at reducing speculative trading and protecting retail investors:
- Weekly Options Contracts Limit: Only one weekly options contract per exchange is allowed to curb speculative trading.
- Increased Contract Sizes: As of November 20, the minimum contract size for derivatives has been raised from ₹5 lakh to ₹15 lakh, making entry more expensive and deterring speculative trading.
- Upfront Premium Collection: Brokers are now required to collect premiums upfront from options buyers, preventing intraday volatility from speculative positions without proper margins.
Sebi’s Proposed Additional Measures to Safeguard Retail Investors
While these actions are a step in the right direction, more could be done to protect retail traders:
- Investor Education: It’s crucial to educate traders about the primary purpose of F&O as a hedging tool, not a form of investment. Sebi, in collaboration with market institutions, could lead campaigns to raise awareness.
- Minimum Portfolio Requirement: Setting a minimum portfolio size of ₹10-15 lakh for F&O traders could ensure that participants have a fundamental understanding of trading principles, discouraging speculative behaviour.
- Restricting F&O to Underlying Exposures: Following a model similar to the RBI’s approach with currency derivatives, Sebi could restrict F&O trading to those with exposure to underlying securities, reducing speculative activity.
- Adjusting Weekly Expiry Dates: Limiting weekly expiry contracts to Monday through Friday could help level the playing field, as current expiry dates benefit institutional players who exploit time decay over weekends.
By adopting these strategies, Sebi could further reduce losses for retail traders and create a healthier market environment.
TradeFX: Empowering Retail Traders with Innovative, Accessible Solutions
At TradeFX, we believe that trading should be inclusive and accessible to everyone, regardless of their capital size. Our platform is designed to provide retail traders with advanced tools and features, making trading more efficient, secure, and accessible. Whether you’re trading with ₹1,000 or ₹10,00,000, we offer a unique trading experience tailored to the needs of modern traders. Here’s how TradeFX is revolutionizing retail trading:
- Trade Fractional Lot Sizes from ₹1,000
One of the key features of TradeFX is the ability to trade fractional lot sizes, allowing retail traders to participate in markets that traditionally require large capital. With just ₹1,000, you can trade in Indian and US stocks and even cryptocurrencies. This innovation reduces the entry barrier, enabling novice traders to build experience and grow their investments.
- Zero Brokerage Fees
At TradeFX, we understand that brokerage fees can eat into profits. That’s why we offer zero brokerage fees, ensuring that you keep more of your earnings. Whether you’re making a small or large trade, our zero-commission model helps maximize your returns.
- 500x Margin for Enhanced Leverage
We offer up to 500x margin, allowing traders to amplify their trading power. This feature enables you to take larger positions in the market with minimal capital, significantly increasing your profit potential. Along with this, our risk management tools ensure that you can trade responsibly.
- Instant Withdrawals in Just 30 Minutes
Liquidity is key, and TradeFX makes it easier to access your funds quickly. Our platform allows for instant withdrawals within 30 minutes, ensuring that you have immediate access to your profits.
- Hassle-Free Sign-Up with No KYC
Starting your trading journey with TradeFX is quick and easy. Our no-KYC sign-up process takes under one minute, allowing you to begin trading without delays or cumbersome paperwork.
- Negative Balance Protection
At TradeFX, we prioritize your financial safety. Our negative balance protection ensures that you can never lose more than you have deposited. This feature provides peace of mind, even during volatile market conditions.
- Diverse Trading Options
We offer a wide range of trading opportunities across multiple markets, including cryptocurrencies, Indian stocks, and US equities. This diversity enables you to build a balanced portfolio and explore various investment avenues without switching platforms.
Start trading with just ₹1,000 today and experience how TradeFX, the ultimate platform for beginners, is transforming retail trading!
Disclaimer:
This content is for educational purposes only. The securities mentioned are for example purposes and not recommendations. Always consult a professional before making any trading decisions.
