NEW DELHI: Chances of making money in fantasy sports are higher than that of options trading, according to an analysis by Axis AMC. According to the analysis, the take rate of the pot in fantasy sports is 15%, meaning that for every Rs 100 put in by the retail participants, they get Rs 85 back. The skew is opposite in derivatives, with only 15% of the pot coming back to retail. As per a recent SEBI study in FY22, retail traders on aggregate lost more than 80% of their bets (Rs 45,000 crore was lost by 90% of participants while 10% of the participants earned Rs 6,900 crore).
Despite this unfavourable probability of making a profit, India has seen a record rise in number of derivative traders and the volume they operate. In India, derivative volumes are over 400 times higher than that of underlying value of cash market today, having grown from just 3 times in 2010. In contrast, derivatives volumes in most market account for 5-15 times their cash market volumes. Total derivatives volumes have risen to over $4.3 trillion per day roughly translating to 125% of the underlying companies’ market capitalization or over 200% of its free float being traded every day.
“A key reason for attractiveness of the product is the embedded leverage, where only a fraction of the notional value is needed to transact that ends up magnifying the potential gains (as well as losses) for the participant,” Axis AMC noted. The effective leverage on an index option during expiry day is 500x, which is luring the retail traders. A Rs 2,000 option allows Rs 10 lakh exposure and these are largely speculative bets a retailer holds an option on average for just 30 mins.
As per Axis AMC, change in contract structure, leverage combined with the ease of onboarding and interface of the new generation trading apps has triggered gamification of this market with number of active derivatives traders jumping 8 times to 4 million from less than 0.5 million in 2019. In comparison, in the cash market, the number has grown three times from 3 million in 2019 to 11 million in 2023. Of the over 5,000 firms listed in India, derivatives contracts are available for 193 stocks and indices.