The world of equity derivatives is often shrouded in complexity and uncertainty. Recently, we delved into SEBI’s analysis of profits and losses in the equity derivatives segment from FY22 to FY24. What we discovered was both eye-opening and thought-provoking. The data reveals not only the intricacies of derivatives trading but also the harsh financial realities faced by traders over the past two years.
In this blog, we aim to dissect the findings of the analysis, offering insights into trader demographics, performance trends, and the broader implications of these numbers.
At First Lets look the category of traders whcih traded. Below is the data for FY 24 the Individual category Traders experienced the highest gross loss of ~ ₹41,500 crore,
Category-wise Profit & Loss for FY24
Trading Landscape
A significant portion of profits in Futures and Options (F&O) has been captured by algorithmic trading entities. According to the analysis, foreign portfolio investors (FPIs) and proprietary traders largely relied on algorithms, showcasing the growing influence of technology in trading practices.
The Loss Makers
The data indicates that of the 113.2 lakh individual F&O traders, a staggering 91.3% (103.4 lakh traders) engaged solely in Options trading, while only 0.6% (0.70 lakh traders) focused exclusively on Futures. This highlights a clear preference among traders for Options, yet raises questions about the overall profitability within this segment.
In FY24, 91.1% individuals made net losses (i.e. trading losses inclusive of transaction
costs) in F&O, compared to 91.5% in FY23 and 90.2% in FY22. In terms of gross P&L
(i.e. trading profits & losses before accounting for transaction costs), 85.1% of
individuals made losses in FY24.
Age-wise Trends
Interestingly, the proportion of young traders—those under 30 years—has surged from 31% in FY23 to 43% in FY24. However, the analysis also reveals a concerning trend: younger traders tend to incur losses more frequently.
In FY24, 93% of traders under 30 recorded losses, whereas only 79% of traders over 60 experienced similar setbacks. This suggests that as traders gain experience and maturity, they may adopt more prudent risk management strategies.
Income-wise Trends
The analysis also examined the financial profiles of individual F&O traders. Nearly 76% declared annual incomes of less than ₹5 lakh, while around 94% reported incomes below ₹10 lakh. This indicates that small and mid-income traders (those earning less than ₹10 lakh) constitute almost 98% of the trader population, painting a picture of a largely undercapitalized trading environment.
New Traders vs. Regular Traders
A staggering 42 lakh traders entered the F&O market as “New Traders” in FY24. Unfortunately, 92.1% of these newcomers faced net losses, averaging around ₹46,000 per individual. In contrast, regular traders, making up 25% of the trading population, fared slightly better, though 88.7% still reported losses averaging ₹1,50,000.
Geographic Spread
Geographically, the analysis indicates that over 50% of F&O traders hail from four states: Maharashtra, Gujarat, Uttar Pradesh, and Rajasthan. Maharashtra alone accounted for 21.7% of traders, highlighting regional disparities in trading activity.
Trading Behavior and Persistence
Perhaps the most striking finding is the persistence of loss-making traders. An astounding 76.3% of these traders continued to engage in F&O trading despite suffering losses over two consecutive years. Out of 24.4 lakh investors who experienced losses in FY22 and FY23, 18.6 lakh persisted into the third year, but only 8.3% ultimately turned a profit.
Conclusion
The insights gleaned from SEBI’s analysis provide a sobering look at the state of equity derivatives trading in India. While the allure of profits can be enticing, the statistics reveal a landscape fraught with challenges, particularly for younger and less experienced traders. As we continue to explore the dynamics of the trading world, it’s crucial for participants to equip themselves with knowledge and sound risk management strategies.
SEBI has designed a standardized test for awarness of investors called SEBI Investor Certification Examination to gauge the financial literacy of individual investors. By ensuring investors are knowledgeable about various financial products, market mechanisms, and regulations, SEBI aims to promote a more secure and transparent investing environment.
Understanding these trends not only prepares traders for the realities of the market but also fosters a more resilient trading community.
