SEBI Study: 93% Individual F&O Traders Face Losses Over Three Years

A SEBI study reveals that over 93% of individual traders in the equity futures and options segment faced significant losses from 2021-22 to 2023-24. Even with consecutive years of losses, 75% continued trading. The study emphasizes the need for improved financial education and investor awareness.

A recent study by the Securities and Exchange Board of India (SEBI) revealed that approximately 93% of individual traders in the equity futures and options (F&O) segment have incurred significant losses. Despite consecutive years of negative returns, over 75% of these loss-making traders continued their activities in this segment.

The study shows that aggregate losses for individual traders exceeded Rs 1.8 lakh crore between 2021-22 and 2023-24. Financial derivatives, such as F&O, allow traders to speculate on asset price movements without owning the assets, which can range from stocks and commodities to indices and interest rates.

SEBI has raised concerns about speculative activities in the derivatives market, noting they counter the original purpose of these financial instruments. This latest study follows a January 2023 report, which found that 89% of individual equity F&O traders lost money in 2021-22.

The recent analysis highlights the profit and loss patterns of individual F&O traders over three years, revealing an average loss of Rs 2 lakh per trader, inclusive of transaction costs. The top 3.5% of loss-makers, about 4 lakh traders, faced average losses of Rs 28 lakh per person during this period.

Only 1% of individual traders earned profits exceeding Rs 1 lakh after transaction costs. In contrast, proprietary traders and Foreign Portfolio Investors (FPIs) reported gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively, for 2023-24, primarily due to algorithmic trading.

Individual traders spent an average of Rs 26,000 on F&O transaction costs in 2023-24, with total transaction costs for individuals reaching Rs 50,000 crore over three years. Brokerage fees accounted for 51% of these costs, while exchange fees made up 20%.

Younger traders, below 30 years of age, grew from 31% in 2022-23 to 43% in 2023-24. Meanwhile, 72% of the total F&O trader base resided in Beyond Top 30 (B30) cities, surpassing the 62% of mutual fund investors from these regions. Over 75% of individual F&O traders in 2023-24 reported an annual income below Rs 5 lakh.

Despite repeated losses, a significant proportion of traders persisted in their F&O activities. The Economic Survey presented in Parliament emphasized the need for raising financial awareness and providing ongoing financial education to inform investors about the risks and returns of derivatives trading.

(With inputs from agencies.)