SEBI Study Reveals Shocking Losses for Individual F&O Traders

The latest report by the Securities and Exchange Board of India (SEBI) highlights a startling trend in the futures and options (F&O) trading market: an overwhelming 93% of individual traders suffered significant losses between FY22 and FY24. With aggregate losses amounting to a staggering Rs 1.8 lakh crore, this analysis provides critical insights into the trading patterns and financial realities faced by individual investors in this volatile market.

The Extent of Losses

According to the SEBI report, over one crore individual investors participated in the F&O market during this period, with nearly nine out of ten traders incurring average losses of Rs 2 lakh each. The top 3.5% of loss-makers—around 4 lakh traders—experienced even more severe losses, averaging Rs 28 lakh each. Remarkably, only 1% of individual traders managed to earn profits exceeding Rs 1 lakh after adjusting for transaction costs.

This stark data underscores the inherent risks of F&O trading and raises questions about the strategies employed by these traders.

Comparison with Proprietary Traders and FPIs

In sharp contrast to the dismal performance of individual traders, proprietary traders and foreign portfolio investors (FPIs) posted impressive profits. In FY24 alone, proprietary traders generated gross trading profits of Rs 33,000 crore, while FPIs recorded profits of Rs 28,000 crore. This raises a crucial point: the majority of profits in the F&O market stemmed from larger entities that effectively leveraged algorithmic trading. Notably, 97% of FPI profits and 96% of proprietary trader profits were generated through algorithmic trading strategies, highlighting the growing importance of technology in trading.

Rising Transaction Costs

Despite incurring significant losses, individual traders continued to spend on F&O transactions, averaging Rs 26,000 per person in FY24. Over the three years, the collective expenditure on transaction costs exceeded Rs 50,000 crore. Of this, 51% was attributed to brokerage fees, while 20% went towards exchange fees. This illustrates the financial burden of trading costs, even for those who ultimately lose money.

Demographics of F&O Traders

The SEBI study also provided insights into the demographic trends among F&O traders. The proportion of young traders (under 30 years) surged from 31% in FY23 to 43% in FY24, indicating a growing interest among younger investors in high-risk trading activities. Additionally, individuals from Beyond Top 30 (B30) cities represented over 72% of the total F&O trader base, a notable increase compared to mutual fund investors, where only 62% hailed from B30 cities.

Income Profiles of Traders

When examining the income profiles of F&O traders, the report revealed that over 75% of individual traders declared an annual income of less than Rs 5 lakh in FY24. This statistic raises concerns about the financial capacity of many individual traders to withstand significant trading losses.

Persistence in Trading Despite Losses

Perhaps the most surprising finding from the SEBI report is the persistence of loss-making traders. Despite enduring consecutive years of losses, over 75% of these traders continued to engage in F&O trading. This highlights a complex psychological aspect of trading, where the hope of recovery may compel individuals to keep participating in a market that has proven detrimental to their finances.

The SEBI study serves as a stark reminder of the challenges faced by individual F&O traders in India. With a significant majority incurring substantial losses, traders must adopt more informed and strategic approaches to trading. As technology continues to reshape the trading landscape, understanding the risks and behaviours that characterize individual trading can help mitigate future losses. For many, the road ahead may require a reevaluation of trading strategies and an exploration of alternative investment avenues to safeguard their financial futures.

Also Read: Bajaj Housing Finance IPO Allotment Status: Check Your Shares Now