A recent Sebi report has revealed alarming trends in the equity futures and options (F&O) market, highlighting substantial losses incurred by individual traders between FY22 and FY24. In FY24 alone, 91.1% of these traders experienced losses, with the average individual loss amounting to ₹1.20 lakh.
Over the three years from FY22 to FY24, 11.3 million traders collectively suffered a staggering net loss of ₹1.81 trillion. Only 7.2% of participants managed to turn a profit during this period.
Institutional Gains vs Retail Losses
While individual traders faced significant setbacks, institutional players like foreign portfolio investors (FPIs) and proprietary traders saw gains. In FY24, FPIs and proprietary traders earned ₹28,000 crore and ₹33,000 crore, respectively, whereas individuals and other participants lost over ₹61,000 crore, excluding transaction costs.
A concerning trend is the growing participation of younger traders, particularly those under 30 years old, in the F&O market. Their share rose from 31% in FY23 to 43% in FY24, with a striking 93% of them incurring losses. Low-income traders, earning less than ₹5 lakh annually, made up 76% of the F&O participants in FY24 and had the highest proportion of loss-makers.
Sebi’s Measures to Address Retail Losses
In response to these worrying statistics, Sebi has introduced measures to reduce speculative retail participation in F&O:
- Limiting Weekly Options Contracts: Only one weekly expiry options contract is now permitted per exchange.
- Increased Contract/Lot Sizes: Effective 20 November, the minimum contract size for derivatives has been raised from ₹5 lakh to ₹15 lakh, increasing the cost of entry and discouraging speculative trading.
- Upfront Premium Collection: Brokers are now required to collect the premium upfront from options buyers, curbing intraday volatility caused by speculative positions without adequate margins.
| Index Derivatives Contracts | Existing Lot Size | New Lot Size |
| Nifty 50 | 25 | 75 |
| Bank Nifty | 15 | 30 |
| Nifty Midcap Select | 50 | 120 |
| Nifty Financial Services | 25 | 65 |
| Nifty Next 50 | 10 | 25 |
| BSE Sensex | 10 | 20 |
| BSE Bankex | 15 | 30 |
| BSE Sensex 50 | 25 | 60 |
Further Steps SEBI Could Consider
While these measures are a step in the right direction, additional steps could be implemented to further protect retail investors:
- Investor Education Campaigns: Educating retail participants about the primary purpose of F&O as a hedging tool rather than an investment avenue is crucial. Collaborations between Sebi, market institutions, and industry associations could promote awareness of the risks involved in F&O trading.
- Minimum Portfolio Size Requirement: Setting a minimum equity portfolio threshold of ₹10-15 lakh for individuals trading in F&O could ensure participants have a sound understanding of investment principles and discourage treating F&O as a form of gambling.
- Restricting F&O to Underlying Exposures: Drawing inspiration from RBI’s approach to currency derivatives, Sebi could restrict F&O trading to investors who have exposure to underlying securities, reducing speculative trading volumes.
- Adjusting Weekly Expiry Dates: Current weekly expiry contracts span Friday to Thursday, benefitting large institutional players who exploit time decay over weekends. Limiting weekly contracts to Monday through Friday trading could level the playing field.
By adopting these additional measures, Sebi could further mitigate retail losses and promote a healthier trading environment.
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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.
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