SEBI study finds 93% of individual F&O traders made losses between FY22 and FY24

Sebi data revealed that 72.2% of the total F&O traders belonged to the B30 cities, whereas this pool accounted for 61.7% of the mutual funds investors.

Individual traders in the futures and options (F&O) market suffered a staggering Rs 1.8 lakh crore in aggregate losses over the past three fiscal years, with nearly 93 percent of more than 1 crore investors, or nine out of 10 traders, incurring average losses of Rs 2 lakh each, according to a Securities and Exchange Board of India (SEBI) analysis.

Notably, the top 3.5 percent of loss-makers -- about 4 lakh traders -- suffered an average loss of Rs 28 lakh each over the three years from FY22 to FY24, inclusive of transaction costs.

Only one percent of the individual traders managed to earn profits exceeding Rs 1 lakh, after adjusting for transaction costs.

This assumes significance as an earlier study published in January 2023 by the capital market watchdog showed that 89 percent of individual equity F&O traders lost money in FY22.

"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," stated the latest report by SEBI.

The SEBI study has also found that in sharp contrast, proprietary traders and foreign portfolio investors (FPIs) as a category booked gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively, in FY24 (before accounting for transaction costs).

Individuals and others incurred a loss of over Rs 61,000 crore in FY24 (before accounting for transaction costs).

Interestingly, most of the profits were generated by larger entities that used trading algorithms, with 97 percent of FPI profits and 96 percent of proprietary trader profits coming from algorithmic trading.

Further, while most individual traders did not make money in the F&O segment, they ended up spending on an average an amount of 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 percent of these costs being brokerage fees and 20 percent being exchange fees, stated a release by SEBI.

In terms of age, the proportion of young traders (below 30 years) in the F&O segment rose from 31 percent in FY23 to 43 percent in FY24. Further, individuals from Beyond Top 30 (B30) cities made up over 72 percent of the total F&O trader base, a higher proportion compared to mutual fund investors wherein 62 percent are from B30 cities.

The study also revealed that in terms of the income profiles of traders, over 75 percent of individual F&O traders in FY24 had declared an annual income of less than ₹5 lakh.

In terms of trading behaviour and persistence, the SEBI study found that despite consecutive years of losses, more than 75 percent of the loss-making traders continued trading in F&O.