93% of Individual Traders Suffered Losses In F&O In Last 3 Years: Sebi Study

Nine out of 10 individual traders, or 93 per cent of them, incurred losses in the equity futures and options (F&O) trading segment between FY22 and FY24, with total losses exceeding Rs 1.8 lakh crores, according to the latest study by the Securities and Exchange Board of India (Sebi). The study was conducted to analyse the individual traders’ profit and loss patterns in the F&O segment between FY22 and FY24 and all categories of investors in F&O during FY24. The study follows up on a 2023 Sebi report, which found 89 per cent of individual F&O traders lost money in FY22.

Key findings of the study:

· Ninety-three per cent of over one crore individual F&O traders incurred average losses of around Rs 2 lakh per trade (including transaction costs) during FY22-FY24.

· Top 3.5 per cent of loss-makers, or around 4 lakh traders, lost an average of Rs 28 lakh per person in the same period, including transaction costs.

· Just 1 per cent of individual traders could earn profits exceeding Rs 1 lakh after adjusting for transaction costs.

· Unlike individual and other traders, who lost over Rs 61,000 crore in FY24 (before accounting for transaction costs), proprietary traders and Foreign Portfolio Investors (FPIs) booked gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively.

· Also, larger entities using trading algorithms generated most of the profits, with 97 per cent of FPI profits and 96 per cent of proprietary trader profits coming from the algorithms.

· On average, individual traders spent Rs 26,000 per person on F&O transaction costs in FY24.

· Individuals collectively spent about Rs 50,000 crore on transaction costs over the three years, with 51 per cent of these costs being brokerage fees and 20 per cent being exchange fees.

· The percentage of traders below 30 in the F&O segment rose from 31 per cent in FY23 to 43 per cent in FY24.

· Individuals from Beyond Top 30 (B30) cities made up over 72 per cent of the total F&O trader base, a higher proportion than mutual fund investors, 62 per cent of whom are from B30 cities.

· Over 75 per cent of individual F&O traders in FY24 had declared an annual income of less than Rs 5 lakh.

· Despite consecutive years of losses, over 75 per cent of loss-making traders continued trading in F&O.

Efforts To Protect Small Investors

In July this year, a Sebi appointed expert group on exchange-traded derivatives proposed increasing lot sizes of futures and options from the current Rs 5 lakh to Rs 25 lakh, as part of efforts to protect small investors from risks in index and stock options trading. Other proposed measures included raising margins around expiry dates, limiting weekly options to only one expiry per stock exchange per week, and rationalising strike prices.