An earlier study had shown that between FY19 and FY22, 89% of retail traders in the segment had lost money. On the other hand, proprietary traders and foreign funds made huge profits.
F&O roulette: Over 9 of 10 retail traders lose money
A staggering 93 of 100 retail traders in the futures & options segment lost money, while only one out of the 100 gained over Rs 1 lakh annually between FY22-24, a new study by Sebi showed. An earlier study had shown that between FY19-22, 89% of retail traders in the segment had lost money.
On the other side, proprietary traders and foreign funds made huge profits. And within the profit makers, ‘algo traders’ – those who trade in the derivatives segment using software-based automated systems – took home most of the profits, the study showed.
“More than one crore loss-making traders (92.8% of individual traders) lost, on an average, about Rs 2 lakh per person in F&Os” during the study period, the report noted. “Top 3.5% of loss-makers, approximately 4 lakh traders, faced an average loss of Rs 28 lakh per person over the same period, inclusive of transaction costs.” The study also found that only 7.2% of retail F&O traders made a profit over the three-year period and of the profit makers, a mere 1% managed to earn profits exceeding Rs 1 lakh, after adjusting for transaction costs. Additionally, the 1.1 crore retail derivatives traders together lost Rs 1.8 lakh crore during these three years.
The study also showed that between FY23 and FY24, the proportion of young F&O traders (below 30 years) increased significantly from 31% to 43%. “Nearly 93% of these young traders incurred losses in F&O in FY24, higher than the average loss makers of 91.1% in FY24,” the study noted.
While (retail traders) made losses in the segment, FPIs and proprietary traders earned profits in FY24. Proprietary traders earned about Rs 33,000 crore of gross profits (that is trading profits before accounting for transaction costs) in the F&O segment, followed by FPIs who earned about Rs 28,000 crore in gross profits. Against this, retail traders and others incurred a loss of over Rs 61,000 crore in FY24 (before accounting for transaction costs), the study noted. A majority of profits for FPIs and proprietary traders were made by algo entities. “97% profits of FPIs and 96% profits of proprietary traders came from algo entities in FY24,” according to the report.
These numbers came in despite warnings and words of caution from the finance minister, the finance secretary, the CEA and the Sebi chief. The new study is expected to strengthen Sebi’s move to rein in F&O trading as the regulator works to bring in major changes to the margin system, the contract value etc, in the F&O segment.