A recent study conducted by capital markets regulator Sebi revealed that over nine out of 10 individual traders in the equity futures and options (F&O) segment continue to incur significant losses. This study follows up on a report published by Sebi in January 2023, which found that 89 per cent of individual equity F&O traders lost money in FY22.
"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," it stated.
The aggregate losses of individual traders exceeded Rs 1.8 lakh crore over the three-year period between FY22 and FY24, the study also said.
"With increased participation of individual investors in equity and equity derivatives markets, the current study was undertaken to analyze profit and loss patterns for individual traders in F&O during the three years FY22 to FY24, and for all the categories of investors in F&O during the single year FY24," it added.
The study also mentioned that top 3.5 per cent of loss-makers, approximately 4 lakh traders, who faced an average loss of Rs 28 lakh per person over the same period, inclusive of transaction costs. And, only 1 per cent of individual traders managed to earn profits exceeding Rs 1 lakh, after adjusting for transaction costs.
"In contrast to individual traders, proprietary traders and foreign portfolio investors (FPIs) as a class booked gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively, in FY24 (before accounting for transaction costs). Against this, Individuals and others incurred a loss of over Rs 61,000 crore in FY24 (before accounting for transaction costs). Most of the profits were generated by larger entities that used trading algorithms, with 97% of FPI profits and 96% of proprietary trader profits coming from algorithmic trading," Sebi's study highlighted.
"On an average, individual traders spent Rs 26,000 per person on F&O transaction costs in FY24. Over the three-year period from FY22 to FY24, individuals collectively spent about Rs 50,000 crore on transaction costs, with 51 per cent of these costs being brokerage fees and 20 per cent being exchange fees," it further said.
"The proportion of young traders (below 30 years) in the F&O segment rose from 31% in FY23 to 43 per cent in FY24. Individuals from Beyond Top 30 (B30) cities made up over 72 per cent of the total F&O trader base, a higher proportion compared to mutual fund investors, 62 per cent of whom are from B30 cities. Over 75 per cent of individual F&O traders in FY24 had declared an annual income of less than Rs 5 lakh. Despite consecutive years of losses, more than 75 per cent of loss-making traders continued trading in F&O," the study also showed.
Sebi, in July, came out consultation papers with an aim to curb volatility in the F&O space.