SEBI study discovers 93% F&O traders made losses

According to an analysis by Securities and Exchange Board of India (SEBI), individual traders in the futures and options (F&O) market lost an astounding Rs 1.8 lakh crore in total over the previous three fiscal years. Nearly 93 percent of the more than 1 crore investors, or nine out of ten traders, suffered average losses of Rs 2 lakh each.la

Remarkably, throughout the course of the three years from FY22 to FY24, the top 3.5 percent of loss-makers, or around 4 lakh traders, lost an average of Rs 28 lakh apiece, including transaction fees.

After deducting transaction fees, a mere 1% of individual traders were able to make profits exceeding Rs 1 lakh. 

This takes on significance because 89 percent of individual equities F&O traders lost money in FY22, according to a earlier study released by the capital market watchdog in January 2023.

The latest report by SEBI stated, “With increased participation of individual investors in equity and equity derivatives markets, the current study was undertaken to analyse profit and loss patterns for individual traders in F&O during the three years FY22 to FY24, and for all the categories.”

The SEBI analysis also discovered that, in stark contrast, foreign portfolio investors (FPIs) and proprietary traders collectively recorded gross trading profits of Rs 28,000 crore and Rs 33,000 crore in FY24 (before accounting for transaction expenses).

In FY24, losses to individuals and other parties exceeded Rs 61,000 crore (before transaction charges were deducted).

Must Read: Criteria for entry, exit of stocks in F&O segment revised by SEBI

It’s interesting to note that larger companies using trading algorithms made up the majority of the profits; algorithmic trading accounted for 97% of FPI profits and 96% of income from proprietary traders.

Furthermore, even though the majority of individual traders lost money in the F&O market, in FY24 they ended up paying an average of Rs 26,000 per person for F&O transaction fees. 

According to a release from SEBI, throughout the course of the three-year period between FY22 and FY24, individuals spent over Rs 50,000 crore on transaction charges collectively. Of these costs, brokerage fees accounted for 51% and exchange fees for 20%.

The percentage of young traders (those under 30) in the F&O category increased from 31% in FY23 to 43% in FY24. Furthermore, a larger percentage of F&O traders—more than 72% of all traders—came from Beyond Top 30 (B30) cities than mutual fund investors—62 percent of whom come from B30 cities. 

Regarding the income profiles of traders, the study also showed that more than 75% of individual F&O dealers in FY24 reported having an annual income of less than ₹5 lakh.

Regarding trading behavior and persistence, the SEBI investigation discovered that over 75% of the losing traders persisted in trading F&O even after experiencing losses for several years in a row.