Retail traders lose money in options globally as institutions dominate short-term trading

SEBI study published in September 2024 found that 93 percent of over 1 crore individual traders lost money in equity derivatives between FY22 and FY24

• Retail traders lose to tech-savvy firms in options trading
• SEBI: 93% of Indian retail traders lost money in derivatives
• Studies reveal retail traders' costly errors in options trading.

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Retail traders tend to lose money in options trading across markets globally, as sophisticated trading firms equipped with advanced technology and quantitative models hold a structural advantage over smaller investors, according to market participants and academic research.

Ananth Narayan G, former whole-time member of the Securities and Exchange Board of India (SEBI), said small traders trying to profit from rapid, short-term trades often compete against institutional liquidity providers and market makers that operate with far superior trading infrastructure. Ananth was speaking at Moneycontrol Global Summit 2026 in Mumbai.

These firms typically use co-location facilities and automated trading models that process price movements in extremely short intervals, allowing them to react to market data faster than individual traders.

“When you have model-based market providers and risk providers bringing liquidity to the ecosystem, they have the advantage of seeing prices instantly and having models that guide decisions at very short intervals,” Narayan said.

He added that when retail traders attempt frequent buy-and-sell strategies within short timeframes, “their odds are stacked against them because they are effectively competing with models that have access to immediate data.”

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SEBI study published in September 2024 found that 93 percent of over 1 crore individual traders lost money in equity derivatives between FY22 and FY24, with average losses of around Rs 2 lakh per trader. Total losses exceeded Rs 1.8 lakh crore during the three-year period. Despite repeated losses, more than 75 percent of traders continued trading in the equity derivatives segment. Another study published in FY25 also confirmed that 91 percent retail traders lose money in equity derivatives segment.

Industry participants said the phenomenon is not unique to India and reflects a broader global pattern in derivatives markets.

Aniruddh Chaudhary, Founder of Lama Capital, said data suggests that about 90 percent of retail traders tend to lose money in derivatives markets. Similar trends are visible in the United States, where participation by retail investors in options linked to the S&P 500 is even higher than in India.

He said derivatives trading is largely a ‘zero-sum game’ where gains by some traders are matched by losses for others. In such markets, participants with better infrastructure, access to data, and teams of quantitative analysts tend to gain an advantage.

Chaudhary said this pattern reflects a broader statistical concept known as the Pareto principle, where a small proportion of participants account for a majority of outcomes. Similar dynamics are visible in sectors such as venture capital and mutual funds, where many funds fail to outperform benchmarks over long periods.

While acknowledging that such outcomes are natural in competitive markets, he said regulators typically try to identify zero-sum systems and introduce safeguards or “friction” to limit excessive speculation while allowing markets to function. He said, “the regulators' North star is to identify these zero-sum games and try to create more friction so there's more redistribution of capital”.

Market educators also say retail investors often enter derivatives trading with unrealistic expectations of quick profits.

Nitesh Khandelwal, Chief Executive Officer of QuantInsti, said many individuals start trading with relatively small capital and hope to generate very high returns within short periods.

“When investors put in Rs 1 lakh or Rs 2 lakh and realise that even a strong annual return of 15-18% translates into only about Rs 1,250 per month, they start looking for ways to multiply money faster,” he said. He further added, “ If the people who cannot afford to lose and who do not understand these things, if they become a significant source of, volume, I think that's a dangerous situation and that's the problem that needs to be solved”.

This often pushes investors toward high-risk strategies such as aggressive options buying, where large gains are theoretically possible but losses are far more common.

Academic research also supports these concerns. A study published in 2025 by researchers at the Massachusetts Institute of Technology and the Stanford Graduate School of Business analysing options trading data from the Nasdaq between 2010 and 2021 found that retail investors frequently make what researchers described as a “trio of wealth-depleting mistakes.”.

Retail traders often push up option premiums before major events, face about 9–10 percent losses due to bid-ask spreads, and delay exiting positions after events when volatility drops, leading to further losses.

Combined, these behaviours led to average losses of 5-9 percent around earnings announcements and as much as 10-14 percent for stocks with high expected volatility, the researchers found. The study also noted that the activity of Options jumped during the Covid-19, similar to the jump in F&O activity in Indian markets.

The findings reinforce growing discussions among policymakers globally about balancing retail participation with adequate safeguards in derivatives markets.

Also read: SEBI revises settlement guarantee fund norms for commodity derivatives clearing corporations