Future and Option Trading: The stock market has seen a sharp rise in participation by retail investors in derivatives trading, particularly in futures and options (F&O). But data from SEBI and recent market studies show that a majority of small investors are consistently losing money in this segment. The losses are often steep, wiping out capital in just a few trades.
Retail participation is booming
Over the last three years, India has witnessed an explosion of new demat accounts. Many of these investors are drawn to options trading because of the relatively low upfront cost compared to buying shares directly. According to SEBI’s 2024-25 report, 9 out of 10 individual traders in the F&O segment ended up making losses, with the average loss amounting to Rs 1.1 lakh per person in a single year.
Why losses are so common
Leverage risk: Futures and options allow traders to take large positions with a small margin. While this leverage amplifies gains, it magnifies losses even faster. A small move in the opposite direction can wipe out the entire margin.
Low probability bets in options: Most retail traders prefer buying options, particularly weekly expiry calls and puts, hoping for quick profits. But these instruments have a high time decay. If the stock or index doesn’t move sharply within the expiry period, the option premium collapses to near zero.
Lack of hedging knowledge: While institutional investors and professionals use F&O mainly to hedge portfolios, retail traders often treat it like a lottery ticket. Without strategies like spreads or protective puts, the risk is unprotected.
High costs and frequent trading: Each trade involves brokerage, GST, stamp duty, and Securities Transaction Tax (STT). For small-ticket traders, these charges eat into already thin margins. Frequent trading worsens the losses.
Behavioral bias and greed: Many new traders double down after losses, hoping to recover quickly. This leads to higher exposure and faster depletion of capital.
Institutional vs Retail
While retail investors chase speculative gains, big institutions — mutual funds, FIIs, and proprietary desks — use derivatives primarily for hedging and arbitrage. For example, a fund holding Infosys shares may sell Infosys futures to protect itself from a fall. Such risk-managed strategies are absent in most retail trades.
SEBI’s warning
SEBI has repeatedly cautioned investors that F&O is a high-risk, complex product, not suitable for inexperienced traders. In fact, the regulator is considering stricter rules, such as higher margins and educational tests, before allowing retail participation in derivatives.
Final words
Futures and options may appear attractive because of low entry costs and the lure of quick profits. But the reality is that retail investors overwhelmingly lose money due to leverage, lack of strategy, and emotional trading. Unless retail investors shift from speculation to disciplined strategies, the F&O market remain a losing game for most.