Only 7% of F&O traders made profit in last 3 years, says Sebi study

According to the Sebi study, 1.13 crore retail traders in F&O markets collectively lost Rs 1.81 lakh crore during this period.

In Short

• Top 3.5% loss-makers averaged Rs 28 lakh loss each
• Only 1% traders earned over Rs 1 lakh profit
• Retail traders in F&O segment nearly doubled in two years

A recent study by the Securities and Exchange Board of India (Sebi) has revealed alarming data about retail traders in the Futures and Options (F&O) market.

The report highlights that over the last three financial years (FY22-FY24), only 7% of individual traders in the F&O segment managed to make a profit, while 93% suffered losses.

"93 per cent of over 1 crore individual F&O traders incurred average losses of around Rs 2 lakh per trader (inclusive of transaction costs) during the three years from FY22 to FY24," said the study.

According to the Sebi study, 1.13 crore retail traders in F&O markets collectively lost Rs 1.81 lakh crore during this period.

The average loss for each trader was Rs 2 lakh, while profit-making traders earned an average of Rs 3 lakh per person. The data shows that trading in F&O is highly risky, with most participants losing money rather than gaining from their investments.

The study also mentioned that about 4 lakh traders from the top 3.5% of loss-makers incurred heavy losses, averaging Rs 28 lakh per person.

Despite popular claims on social media and by 'finfluencers' that options trading can easily yield daily profits, the reality for most traders is far different. The study reveals that only 1% of individual traders were able to earn more than Rs 1 lakh in profits, further highlighting the risks involved in F&O trading.

The Sebi report also sheds light on the addictive nature of derivatives trading, with more than 75% of loss-making traders continuing to trade despite suffering losses for two consecutive years.

Futures vs options

In comparing futures trading with options trading, the study found that the percentage of loss-makers in futures contracts was consistently lower than in options contracts throughout the study period. In FY24, 60% of traders in futures faced losses, whereas 91.5% of options traders ended up losing money.

The sharp rise in retail participation in the F&O market has coincided with an increase in trading volumes, driven by greater market awareness and the influence of financial influencers online. The number of retail traders in the F&O segment has nearly doubled in just two years, growing from 51 lakh in FY22 to 96 lakh in FY24.

Breakdown of losses

The Sebi study highlights that small traders, defined as those with a turnover of less than Rs 1 lakh crore over three years, incurred a net loss of Rs 1,003 crore. Meanwhile, high-value traders with a turnover exceeding Rs 1 crore during the same period experienced a total loss of Rs 1.41 lakh crore.

The number of option traders has more than doubled from 42.2 lakh in FY22 to 85.7 lakh in FY24. Despite this increase in participants, the average size of trades has dropped from Rs 13,055 to Rs 11,824, indicating that traders are engaging in smaller transactions.

Interestingly, the Sebi report found that age plays a significant role in determining a trader’s success or failure in the F&O market.

Young traders, particularly those under the age of 30, were more likely to experience losses. In FY24, 93% of traders under 30 years old lost money. In contrast, traders over 60 years old had a lower loss percentage of 79%.

The report suggests that older traders may have better risk management skills or more experience, which helps them navigate the market more effectively than younger traders.

Income and gender insights

When income levels were considered, the study revealed that low-income traders—those earning less than Rs 5 lakh annually—were most likely to suffer losses, with 92.2% of them losing money in F&O trading. As annual income increased, the percentage of loss-making traders decreased.

The study also found differences between male and female traders. While a higher percentage of men (91.9%) lost money in F&O trading in FY24, the percentage of female traders who made losses was slightly lower at 86.3%.

The average loss per female trader was Rs 75,973, while male traders incurred an average loss of Rs 88,804.

Based on recommendations from an expert panel, the regulator recently published a consultation paper outlining a seven-step guide to help protect retail investors from the pitfalls of F&O trading.

The aim is to curb excessive speculation and reduce the financial damage caused by what some describe as "financial weapons of mass destruction," a phrase used by legendary investor Warren Buffett to describe derivatives.