India’s retail derivatives market has begun to contract after years of rapid expansion, but the financial losses suffered by individual traders remain substantial. According to a Securities and Exchange Board of India study published in August 2026, 87.7% of individual traders lost money in equity futures and options (F&O) during FY26. Their aggregate net losses stood at ₹91,685 crore, compared with approximately ₹1.12 lakh crore in FY25. The decline suggests that regulatory restrictions have had some effect. Yet the average net loss per trader increased to about ₹1.17 lakh. For a financial market that has attracted millions of inexperienced investors, the persistence of such losses raises questions about the adequacy of existing safeguards.
SEBI whole-time member K.V.R. Murty acknowledged the possibility of further regulatory intervention at the Business Standard BFSI Summit on October 27. Referring to heightened derivatives trading on expiry days, he indicated that additional safeguards and investor guidance might be necessary. His remarks come after a series of measures intended to discourage excessive speculation in equity derivatives.
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Retail investors bear the cost of F&O speculation
The scale of retail losses has concerned the regulator for several years. SEBI’s September 2024 study found that 93% of individual derivatives traders incurred losses over FY22-FY24, with their combined net losses exceeding ₹1.8 lakh crore. A subsequent study reported that net losses rose 41% to ₹1.06 lakh crore in FY25, although the latest study has revised the FY25 estimate upwards.
The latest findings offer some encouragement. Participation has declined, aggregate losses have fallen, and the proportion of loss-making traders has improved from about 91% to 87.7%. The number of active individual traders fell by roughly a fifth in FY26. However, the higher average loss suggests that those who continue trading remain substantially exposed.
Discount brokers and mobile trading applications have made derivatives accessible to people who previously had little exposure to complex financial products. The retail base includes experienced traders, salaried employees and first-time participants seeking additional income. Low-cost account opening and convenient trading interfaces have reduced the effort required to enter the market, although they have done little to simplify the financial risks.
SEBI’s earlier research illustrates the profile of this market. Traders below 30 accounted for 43% of individual F&O participants in FY24, up from 31% in FY23. More than three-quarters of individual traders had declared annual incomes below ₹5 lakh. Nearly 93% of traders under 30 incurred losses that year.
These figures suggest that derivatives trading has attracted many participants with limited financial resources. Losses of ₹1 lakh or more can represent a substantial share of their annual income.
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Why derivatives trading produces heavy retail losses
Derivatives involve risks that are not always intuitive, particularly for investors accustomed to buying shares and holding them over extended periods. An options trade depends on the direction, timing and magnitude of price movements. A trader may correctly anticipate a rise in a stock or index and still lose money because the increase comes too late or the option loses value as expiry approaches.
Leverage adds to the risk. Futures contracts and certain options strategies provide exposure to assets worth considerably more than the money initially committed. This can amplify gains, but losses can also be substantial. An option buyer can lose the entire premium paid, while an option seller may face liabilities far exceeding the initial margin.
Frequent trading introduces another disadvantage. Brokerage charges, securities transaction tax and exchange fees reduce returns even when individual trades are profitable before costs. SEBI’s latest research found that options accounted for approximately 92% of individual traders’ aggregate losses in FY26. Transaction costs added roughly ₹25,000 crore to the burden on individual traders.
The difference between retail and institutional outcomes is revealing. In FY26, proprietary traders recorded gross trading profits of approximately ₹44,000 crore, while foreign portfolio investors earned about ₹14,000 crore. Algorithmic entities accounted for 99% of the gross profits recorded by these two categories, according to SEBI.
These gross profits cannot be directly compared with individuals’ net losses, which include transaction costs. Nor does every retail trade involve an institution on the opposite side. Nevertheless, professional trading desks generally possess advantages in execution technology, analytical capabilities and risk management that most individual traders cannot replicate.
Trading platforms make speculation easier
The growth of retail derivatives trading reflects a mismatch between the ease of entering the market and the difficulty of trading profitably. Digital platforms have simplified order placement, while social media has encouraged the perception that trading offers a convenient source of supplementary income.
Financial influencers frequently highlight successful trades without providing comparable information about losses or the cumulative cost of repeated transactions. Screenshots of exceptional returns may encourage inexperienced investors to underestimate the probability of losing money.
Behavioural factors compound these problems. A few profitable trades can encourage overconfidence. Losses may prompt investors to trade more aggressively in an attempt to recover their money. Repeated speculation can gradually erode household savings, particularly when traders use money intended for other financial commitments.
SEBI’s findings also point to the limits of experience as a safeguard. Many individuals continue trading after repeated losses, suggesting that participation alone does not necessarily produce better investment decisions.
The challenge for regulators is complicated by the legitimate role of derivatives in financial markets. Futures and options allow investors to hedge portfolios and help market participants manage price risks. Professional speculation can contribute to liquidity and price discovery. Restrictions that indiscriminately reduce participation could weaken these functions.
Regulation therefore needs to distinguish between informed risk-taking and speculative activity undertaken without adequate understanding of the potential losses.
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SEBI’s restrictions have produced mixed results
SEBI’s October 2024 regulatory measures restricted weekly index-options contracts to one benchmark index per exchange, increased minimum contract sizes, required upfront collection of options premiums and tightened margin requirements around expiry.
The subsequent decline in retail participation and aggregate losses suggests that these measures have helped moderate trading activity. The latest data, however, cannot establish how much of the reduction resulted from regulation rather than market conditions or changes in investor behaviour.
The persistence of heavy losses warrants further scrutiny. Short-dated options remain particularly attractive to speculative traders because their prices can change sharply over a brief period. Their value can also diminish rapidly as expiry approaches.
For individual traders with limited capital, repeated positions in such contracts can result in losses that bear little relation to their initial expectations.
Murty’s recent comments indicate that SEBI is considering whether further safeguards are required. The regulator must balance investor protection against the need to preserve a functioning derivatives market. Excessive restrictions could penalise investors who understand the risks and use these instruments for legitimate purposes.
More effective risk communication would be a useful starting point. Brokers could display illustrations of potential losses, the effect of time decay and the cumulative cost of frequent transactions immediately before an investor places an order. Such information would be more useful than risk warnings acknowledged mechanically during account opening.
Additional suitability assessments for inexperienced traders also deserve consideration. These could examine whether investors understand leverage, margin obligations and the possibility of losing their entire trading capital. Any assessment should be proportionate and should avoid becoming an unnecessary barrier for informed investors.
SEBI already requires brokers to display prominent risk disclosures. Their limited success in changing trading outcomes suggests that information alone may be insufficient. Better disclosures, stronger suitability checks and closer scrutiny of trading practices may be needed in combination.
India has widened access to financial markets considerably. That achievement will be diminished if growing participation leaves a large section of retail investors with repeated financial losses. With 87.7% of individual derivatives traders still losing money, SEBI must examine whether the risks associated with complex financial products are being adequately understood before trades are executed.