EFFECT OF F&O ON SMALL TRADERS

Abstract

This study examines the landscape of Futures and Options (F&O) trading among retail investors in India, leveraging a mixed-methods approach that combines survey data with publicly available market statistics. The central focus is on understanding the interplay between investor sentiment, trading behaviour, and financial outcomes, set against the backdrop of rapidly evolving regulatory frameworks and increasing retail participation. Data from the National Stock Exchange (NSE) indicates a surge in individual F&O traders, contributing to a significant portion of overall trading volumes. However, SEBI data consistently reveals a high rate of losses among this segment, with approximately 9 out of 10 individual traders incurring losses. Between fiscal years 2022 and 2024, over 93% of more than one crore individual F&O traders incurred average losses of approximately ₹2 lakh each, culminating in aggregate losses exceeding ₹1.8 lakh crore. In fiscal year 2024 alone, 91.1% of retail traders suffered losses, amounting to ₹75,000 crore. Conversely, proprietary traders and foreign portfolio investors (FPIs) realized significant profits of ₹33,000 crore and ₹28,000 crore respectively, primarily through algorithmic trading strategies. Demographic data indicates a notable increase in participation from individuals under 30 years of age, rising from 31% in FY23 to 43% in FY24. This younger cohort exhibited a higher loss rate of 93%, surpassing the overall average. Additionally, over 75% of individual traders had annual incomes below ₹5 lakh, highlighting the financial vulnerability of this group. This study seeks to answer critical questions about the sustainability of retail participation in F&O markets. By analyzing the survey data in conjunction with publicly available market data, we aim to identify key risk factors, assess the effectiveness of current regulatory interventions, and propose targeted measures to enhance investor protection and promote responsible trading practices. Ultimately, this research contributes to a better understanding of the challenges and opportunities facing retail investors in the dynamic Indian F&O market and informs evidence-based policies for fostering financial well-being and market stability.