MUMBAI: Further strengthening its belief that F&O segment in not meant for the retail investors, a new study by the market regulator Sebi has found that only 7% of such trader make money while the vast majority of of them or as much as 93% lose heavily and they have collectively lost a whopping Rs 1.8 trillion in the past three years or around Rs 2 lakh per person.
While 3.5% of such traders lost to the tune of Rs 28 lakh per person, only 1% managed to earn profit exceeding Rs 1 lakh, after adjusting for transaction costs, the regulator said, adding more importantly, despite consecutive three years of losses, more than 75% of loss-making traders continued trading in F&O.
“Updated study reveals that as much as 93% individual traders have incurred losses in the equity F&O (futures and options) between FY 22 and FY 24 and their aggregate losses exceeded Rs 1.8 trillion over this three year period,” Sebi said Monday.
Earlier this year in January, the regulator had done a similar study on the segment and had found that 89% of retail traders in F&O segment lost heavily to the tune of Rs 1.25 lakh each in FY 22.
This had led to the regulator setting up a committte this June to suggest measures to wean retail investors away from this segment. The measures suggested capping expiry by exchanges and increasing the lot five-fold among others.
With increased participation of individual investors in equity and equity derivatives markets, the current study has been undertaken to analyse profit and loss patterns for individual traders in F&O during the three years from FY 22 through FY 24, and for all the categories of investors in F&O during FY 24.
The key findings include as much as 93% of over 1 crore individual F&O traders have incurred average losses of around Rs 2 lakh per trader (inclusive of transaction costs) during the three years from FY 22 to FY 24.
Of these the top 3.5% of loss-makers, who number around 4 lakh, had an average loss of Rs 28 lakh per person over the same period, inclusive of transaction costs and only 1% of individual traders managed to earn profit exceeding Rs 1 lakh, after adjusting for transaction costs.
On profit distribution among proprietary traders and foreign investors, the study has found that in contrast to individual traders, proprietary traders and foreign portfolio investors (FPIs) as a class booked gross trading profits of Rs 33,000 crore and Rs 28,000 crore, respectively in FY 24, including transaction costs. Against this, individuals and others incurred a loss of over Rs 61,000 crore in FY 24 before accounting for transaction costs.
Most of this profit was generated by larger entities that used trading algorithms, with 97% of FPI profit and 96% of proprietary traders profit coming from algorithmic trading.
On the transaction costs for individual traders, the study has found that on an average, individual traders spent Rs 26,000 per person on F&O transaction costs in FY 24. Over the three-year period ending FY 24, individuals collectively spent about Rs 50,000 crore on transaction costs, with 51% of these costs being brokerage fees and 20% being exchange fees.
What is more interesting is finding an increasing number of young and B30 city traders in the F&O space. The proportion of young traders (below 30 years) in the F&O segment rose from 31% in FY 23 to 43% in FY 24, while individuals from beyond top 30 (B30) cities made up over 72% of the total F&O volume, which, to put in perspective, is much higher compared to mutual fund investors who form only 62% from the B30 cities.
That it is the allure of quick money leading this surge is clear, when the study has found that over 75% of these individual F&O traders had declared an annual income of less than Rs 5 lakh in FY 24.