The Securities and Exchange Board of India (SEBI) has released a detailed analytical study that reveals an alarming trend in the Indian derivatives market. Net losses incurred by individual traders in the futures and options (F&O) segment rose by 41% to ₹1.06 lakh crore in FY25 compared to the previous fiscal.
This analysis, published by SEBI’s research team, is part of the regulator’s effort to assess systemic risk and retail investor vulnerability in India’s high-volume derivatives trading ecosystem.
Key findings of the SEBI report
- Massive loss concentration:
- The net loss of individual traders in F&O touched ₹1.06 lakh crore in FY25, up from ₹75,000 crore in FY24.
- While gross profits grew marginally, gross losses expanded disproportionately due to aggressive position-taking.
- Who lost the most:
- The majority of losses were reported among traders with annual incomes below ₹10 lakh.
- Traders under the age of 35 accounted for nearly 48% of total net losses, indicating a risky behavioural trend among young participants.
- Average daily turnover soared:
- FY25 saw an average daily turnover of ₹2.25 lakh crore in index options, making it the fastest-growing sub-segment.
- Single stock futures and options volume remained stable but net losses continued to accumulate, driven by leveraged bets without adequate hedging.
- Profit-making traders remain a minority:
- Only 11% of active individual traders reported net profits in FY25.
- Of these, a majority were professional traders or high-frequency strategy users with disciplined stop-loss and hedging frameworks.
Context: Rise of F&O retail participation
| Financial Year | Estimated Active Individual Traders (in lakhs) | Net Losses (₹ crore) | % Change YoY in Losses |
|---|---|---|---|
| FY22 | 25 | 38,000 | – |
| FY23 | 31 | 62,500 | +64% |
| FY24 | 38 | 75,000 | +20% |
| FY25 | 46 | 1,06,000 | +41% |
The table above illustrates how net losses have grown in proportion to the rising number of retail traders in the derivatives market. SEBI’s analysis emphasised that even as market knowledge and education initiatives expand, the complexity of F&O instruments continues to pose risks for unhedged retail participants.
Reasons behind rising net losses
- Lack of risk management discipline:
Many traders engage in weekly expiry options trading without adopting hedging strategies, leading to rapid premium erosion. - High leverage exposure:
F&O contracts allow for high notional exposure with relatively small margin requirements, magnifying losses in adverse market movements. - Behavioural biases:
Overconfidence bias, recency effect (assuming past gains will continue), and inadequate understanding of volatility risks are major causes. - Rise in intraday option selling:
With brokerage firms promoting low-margin intraday trades, the volume of naked option selling increased significantly, which can wipe out capital if markets move sharply against the position.
Policy implications and SEBI’s stance
The regulator indicated that these findings will feed into policy and prudential framework discussions. In FY24 and FY25, SEBI had already initiated:
- Increased margin requirements for high-risk contracts.
- Mandatory risk disclosures by brokers to retail clients highlighting F&O loss probabilities.
- Strengthening educational campaigns under its ‘Saa₹thi’ investor awareness programme.
SEBI Chairman Madhabi Puri Buch recently stated:
“While derivatives markets deepen liquidity, it is our responsibility to ensure that vulnerable retail investors do not misinterpret F&O as pure equity investments. This study demonstrates the urgency of balanced participation and informed trading.”
Reaction from market experts
Nithin Kamath, CEO of Zerodha, posted on social media:
“SEBI’s data shows what we keep warning users – F&O is a zero-sum game with significant costs. Traders need to treat it like a business with strict discipline, not as casual investing.”
Ajay Bagga, veteran market analyst, commented:
“Such large cumulative losses highlight the need for product suitability checks before allowing retail traders unlimited access to F&O.”
Future regulatory possibilities
Given the rising net losses and associated systemic risks, experts anticipate:
- Possible caps on exposure for new traders with less than a defined experience threshold.
- Stricter net worth or income eligibility norms for F&O participation.
- Enhanced mandatory simulation or certification modules before allowing options and futures trades.
- Additional transaction taxes to curb speculative excesses, although such a move may face resistance from brokers and exchanges.
Global comparison
India has become the largest derivatives market globally by contract volume, surpassing even US exchanges. However, while developed markets maintain a significant institutional share in derivatives, India’s retail-heavy composition raises risk alarms.
| Market | % Retail Participation in Derivatives |
|---|---|
| India | 38% |
| US | 12% |
| Japan | 15% |
| South Korea | 20% |
Broader market impact
Despite high retail losses, overall derivatives volumes are unlikely to shrink given:
- The hedging needs of institutional investors.
- Proprietary trading desk volumes from brokers.
- Algorithmic and high-frequency trading’s dominance.
However, brokers may soon face tighter scrutiny around advertising F&O as a wealth-building tool after this report.
Investor takeaway
The SEBI study is a stark reminder for retail investors:
✅ F&O is designed for hedging or strategic portfolio protection, not as an easy wealth creator.
✅ Losses can exceed invested capital due to leverage.
✅ Always assess risk capacity, trading psychology, and strategy discipline before entering options or futures trades.
Conclusion
The 41% jump in net losses to ₹1.06 lakh crore among individual traders is an indicator that India’s equity derivatives market growth must be accompanied by robust investor protection mechanisms, enhanced education, and disciplined risk management frameworks.
Disclaimer: This news article is for informational purposes only. Derivatives trading involves high risk and is not suitable for all investors. Readers are advised to consult certified financial advisors before making any trading decisions.
