SEBI’s F&O risk disclaimer hasn’t affected derivatives volumes, say industry people

SEBI's recent study shows that a large proportion of F&O participants come from smaller towns and modest financial backgrounds

The market regulator’s requirement for a mandatory disclaimer stating that 9 out of 10 traders lose money in futures and options (F&O) on broker websites has not impacted derivative volumes, said industry insiders.

The Securities and Exchange Board of India (SEBI) has mandated that stockbrokers inform investors about the risks of trading in F&O on their websites, as well as each time a derivatives order is placed.

Also read: With 38% returns this year, US-focused Indian mutual funds offer better geographical diversification

As part of this, brokers are required to display a disclaimer on their websites stating that 9 out of 10 traders lose money in F&O.

As per a Sebi analysis in September, individual traders in the 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.

Read more: 35 smallcaps give double digit return despite broader indices underperform

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

Yet, despite this grim statistic, the allure of potentially striking it rich in one swift move keeps traders hooked, often leading to a vicious cycle of repeated losses.

One of the most intriguing aspects of this trend is who these traders are. SEBI's recent study shows that a large proportion of F&O participants come from smaller towns and modest financial backgrounds. A surprising 76 percent of traders earn less than Rs 5 lakh annually.

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.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.