The Growing Trend Despite Losses

Despite the inherent risks, the number of investors engaging in futures and options (F&O) trading continues to rise. This segment, often perceived as a quick way to make money, is reportedly causing significant losses for ordinary investors. A recent report from the Securities and Exchange Board of India (SEBI) reveals alarming statistics about the performance of F&O traders.

Alarming Loss Figures

According to SEBI’s findings:

9 out of 10 F&O investors are losing money.

Between 2021-22 and 2023-24, 93% of traders lost a staggering ₹1.8 lakh crore.

In a previous report from January 2023, it was noted that in the fiscal year 2021-22 alone, 89% of individual equity F&O traders faced losses.

Average Losses of Retail Traders

The study highlights the severity of these losses:

Over 1 crore individual F&O traders saw 93% suffering losses in just three years.

The average loss per trader was around ₹2 lakh, inclusive of transaction costs.

Interestingly, even among those who did manage to profit, the gains were minimal.

Profit vs. Loss

The data shows:

Within the 93% of loss-making traders, 3.5% (around 4 lakh traders) had an average loss of ₹28 lakh.

Conversely, only 1% of traders succeeded in making over ₹1 lakh in profit.

Who is Losing?

The SEBI report indicates that most traders incurring losses have relatively low incomes:

Approximately 75% of individual traders had an income of less than ₹5 lakh in 2023-24.

This raises a crucial question: if the majority are losing, who is making money in this market?

Who is Benefiting?

In the fiscal year 2023-24, individual traders faced a cumulative loss of over ₹61,000 crore, while:

Proprietary traders earned ₹33,000 crore.

Foreign Portfolio Investors (FPIs) made ₹28,000 crore in gross trading profits.

Notably, 97% of FPIs’ profits and 96% of proprietary traders’ profits came from algorithmic trading strategies.

Young Investors and Persistent Losses

The report also highlights a notable demographic shift:

The proportion of young investors (under 30) in F&O trading jumped from 31% in 2022-23 to 43% in 2023-24.

More than 72% of traders come from cities outside the top 30 urban areas, even as mutual funds in these cities account for 62% of total investments.

Despite the overwhelming losses, 75% of traders continue to engage in F&O trading.

Conclusion: A Call for Caution

As more retail investors are drawn into the complexities of futures and options trading, the data suggests a pressing need for greater awareness and caution. Understanding the risks associated with F&O trading is essential to safeguard investments and avoid significant financial setbacks.