Check futures and options for retail investors

With only a handful of investors and traders making any money, retail investors taking F&O bets without fully understanding the risks is a recipe for disaster.
Image used for representational purpose.
Image used for representational purpose.(File Photo | Reuters)

The government has woken up to the dangers of retail investors risking household savings in the futures and options (F&O) market.

Days after the finance minister raised the issue at a BSE event in Mumbai, the government’s chief economic advisor, V Anantha Nageswaran, on Saturday warned against small investors trading in the futures and options markets.

The concern over small investors taking the plunge into F&Os has been building over the last couple of years as volumes in this highly speculative segment of equity trading has been shooting through the roof.

With only a handful of investors and traders making any money, retail investors taking F&O bets without fully understanding the risks is a recipe for disaster.

With the advent of discount broking and new-age trading apps, equity trading is now easily accessible to anyone possessing a smartphone. The F&O segment has attracted a lot of interest among retail investors because of the ‘betting’ nature of futures and options trading. The greed of making a fast buck is also a key attraction for investors towards this market. The segment’s popularity can be gauged from the fact that the monthly turnover of the F&O segment was Rs 8,740 lakh crore in March 2024, 40 times the Rs 217 lakh crore turnover reported in March 2019. In March 2024, the average daily turnover in the equity cash segment of the market was Rs 1 lakh crore, while the F&O segment clocked average daily turnover of around Rs 330 lakh crore.

The capital markets regulator in a report a year ago had revealed that only 11 percent of the individual traders in 2021-22 made gains in the equity F&O segment, with an average profit in the range of Rs 1.5 lakh. The rest of the traders made an average loss of Rs 1.1 lakh during the year. Clearly, the odds in the favour of losses are much higher than those for profits. Yet, easy access to trading apps and hundreds of self-proclaimed trading gurus on social media are leading gullible individuals into this risky segment of the equity market. The government and regulators must take decisive steps to check this tendency, or else many individual investors would be left with irreparable losses.

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