India’s derivatives market is entering a new chapter where it is defined not by abrupt restrictions, but by a deliberate, education-first regulatory approach and an increasingly informed base of retail and institutional participants. The recent comments and signals by regulators highlight a commitment to investor awareness rather than restriction, setting the stage for a more mature and resilient F&O ecosystem.
Emphasis on understanding risk
Over the past year, speculation around potential curbs on weekly expiry contracts, limits on retail participation, and possible structural changes to index derivatives had unsettled traders. However, the government has now dismissed such concerns. Finance Minister Nirmala Sitharaman and the SEBI chairman Tuhin Pandey have stated unambiguously that retail participation will not be curtailed. Instead, the focus is on building a deeper understanding of the risks inherent in leveraged products.
“We have never believed that banning is the solution,” the Finance Minister noted at a recent industry event. “The markets must grow, participation must expand, and investors must be empowered—but with full awareness of the risks they are taking.” Her comments have helped restore confidence, particularly following the sharp dip in derivatives volumes after SEBI’s phased implementation of stricter norms between November 2024 and February 2025.
A market rebounding strongly
The bounce-back in activity has been emphatic. In October 2025, F&O turnover surged to ₹10,632 lakh crore, a one-year high and nearly 476 times the turnover in the cash market. This follows a dramatic 50% contraction in turnover when the stricter norms were first introduced. Cash market activity, meanwhile, continues to be tepid, falling 32% from its July peak, reflecting how derivatives now dominate trading behaviour in India.
The full-year numbers tell an even more compelling story. For FY25, F&O turnover reached ₹2,75,56,534 crore, more than triple the FY24 figure of ₹80,28,353 crore. This extraordinary growth has consolidated India's position as the global leader in equity derivatives. NSE and BSE together account for over 80% of worldwide equity index derivative contracts, a milestone few would have imagined a decade ago.
Regulation with a purpose
The strong recovery comes on the back of SEBI’s regulatory tightening. The new norms mandated upfront premium collection for all options trades, larger lot sizes for key index contracts, real-time intraday monitoring of risk and exposure, some rationalisation of everyday expiry of contracts and higher margin discipline across brokers and clearing corporations.
These measures were rolled out after SEBI observed that a growing number of undercapitalised retail investors were taking excessive leveraged positions without fully understanding their risks. By increasing the entry threshold where Nifty 50 lot sizes tripled to 75 and Bank Nifty doubled to 30, the regulator aimed to weed out high-frequency, underfunded speculators.
A shift in who participates
There has indeed been a shift. Retail investors collectively lost ₹1.06 lakh crore in F&O trading in FY25, and nearly 91% of individuals who traded derivatives ended the year with losses. This prompted both policymakers and exchanges to intensify risk-education initiatives.
But the structural impact is now visible. Many small-lot and thin-margin traders have exited the market. What remains are more seasoned traders capable of handling larger positions and more complex strategies. Higher average ticket sizes, greater use of spreads and hedged structures, and steadier intraday behaviour suggest that the profile of the typical retail derivatives trader is gradually moving away from pure speculation.
Pandey has recently reassured market participants that the intent is not to restrict participation but to ensure that participation does not turn reckless.
A global bright spot amid turbulence
India’s equity markets have outperformed most global peers in 2025. Amid volatile global interest rates, geopolitical uncertainty, and uneven economic recoveries, India stands out for its stability and liquidity. Much of this strength is underpinned by confidence in regulatory clarity.
Policymakers have avoided the knee-jerk interventions seen in other countries during periods of derivatives exuberance. Instead, the focus has been incremental oversight—enhancing surveillance, improving risk frameworks, and ensuring broker-level compliance. These steps have reduced systemic vulnerabilities without stifling market growth.
The Road Ahead: Liquidity, literacy, and long-term depth
As India transitions into this new phase of derivatives growth, three priorities are emerging:
1) Sustained policy clarity: The government and regulators have signalled continuity. That itself inspires confidence.
2) Stronger investor communication:Exchanges, brokers, and regulators are jointly expanding risk-literacy programs, particularly for first-time derivatives users.
3) Broad financial literacy: Long-term depth will come not from restricting instruments but from raising the baseline understanding of retail participants.
Together, these elements position India for a more mature, liquid, and globally integrated derivatives marketplace.
Conclusion
India’s F&O landscape is growing with purpose. With calibrated regulation and policy clarity, informed participation, and global leadership in contract volumes, the country is poised for a new era of market depth and widening mature participation.
The message from policymakers is that the future of derivatives trading will be defined by awareness, prudence, and liquidity and not by interventionist controls. With F&O policy that balances risk with opportunity, India is well-positioned for further growth and leadership in global capital markets.
(Shriram Subramanian is Founder, InGovern Research Services.)
Views are personal and do not represent the stand of this publication.
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