Individuals continue to lose money in derivatives trading, a fresh study by market watchdog SEBI has shown.

Aggregate losses of individual traders exceeded ₹1.8-lakh crore between FY22 and FY24. Ninety three per cent of over 1 crore individual F&O traders incurred average losses of around ₹2 lakh per trader, inclusive of transaction costs. Top 3.5 per cent of loss-makers, about 4 lakh traders, lost ₹28 lakh per person, on average.

Only 7.2 per cent of individual F&O traders made a profit over these three years and just 1 per cent earned profits of over ₹1 lakh, after adjusting for transaction costs.

Advantage algo

Proprietary traders and foreign portfolio investors (FPIs) booked gross trading profits of ₹33,000 crore and ₹28,000 crore, respectively, in FY24 against losses of over ₹61,000 crore incurred by individuals and others. Large entities using trading algorithms cornered most of the profits, with 97 per cent of FPI profits and 96 per cent of proprietary trader profits coming from algorithmic trading.

Over 99 per cent of F&O traders traded options at least once during the last three years.

The percentage share of F&O traders, who traded Futures at least once during a year, has come down to 5.9 per cent in FY24 from 10.6 per cent in FY22. In FY24, about 60 per cent of traders made net losses in futures, compared to 91.5 per cent in options. The proportion of loss makers was highest (95 per cent of total traders) for high-value traders.

Almost half of all the F&O traders, or 42 lakh traders, in FY24 were those who traded for the first time in three years in the equity F&O segment. Over 92 per cent of these experienced losses amounting to ₹46,000 per person in FY24.

On an average, individual traders spent ₹26,000 per person on F&O transaction costs in FY24. Over the three-year period from FY22 to FY24, individuals collectively spent about ₹50,000 crore on transaction costs, with 51 per cent of these costs being brokerage fees and 20 per cent being exchange fees.

Investor profile

The proportion of young traders (below 30 years) in the F&O segment rose from 31 per cent 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 ₹5 lakh. The proportion of low income traders having annual income less ₹5 lakh increased from 71 per cent in FY22 to 76 per cent in FY24. Despite consecutive years of losses, more than 75 per cent of loss-making traders continued trading in F&O.

For every 100 mutual fund investors, there were 28.6 F&O traders from B30 cities and 17.8 F&O traders from T30 cities in FY24. More than 50 per cent of all the F&O traders, who traded in FY24, were from Maharashtra, Gujarat, Uttar Pradesh and Rajasthan.

The current study is an extension of the earlier study published by SEBI in January 2023 for FY19-22.