Expanded losses experienced by retail investors in Futures and Options (F&O) trades surged by 41% during the years 2024-25, according to SEBI (Securities and Exchange Board of India) data.

Expanded losses experienced by retail investors in Futures and Options (F&O) trades surged by 41% during the years 2024-25, according to SEBI (Securities and Exchange Board of India) data.

In a recent study conducted by the Securities and Exchange Board of India (SEBI), it has been revealed that retail individual traders in India's equity derivatives segment experienced a substantial increase in net losses in fiscal 2025. The losses amounted to a staggering 1.06 trillion rupees, marking a 41% rise from the previous year.

## Causes of Net Losses in FY25

The study attributed the net losses to several factors, including increased participation in derivatives trading, inadequate financial literacy among retail investors, and structural risks inherent in the derivatives market.

Despite a 20% year-on-year decline in the number of unique individual investors, the total number of participants remains higher than two years ago, indicating more people are involved in derivatives trading. This increased participation, coupled with higher risk-taking, contributed to the substantial losses.

The persistent high percentage of loss-making traders (about 91%) suggests that many retail investors lack the necessary knowledge and skills to navigate the derivatives market effectively. Furthermore, the derivatives market is inherently risky, and retail traders often face challenges in managing these risks compared to professional traders. The SEBI study highlights that individual traders collectively lost nearly ₹3 lakh crore over four years, underscoring these risks.

## SEBI's Measures and Impacts

In response to these losses, SEBI has been implementing measures to safeguard retail investors, including monitoring turnover trends in index options for investor protection and market stability. Recently, SEBI took action against U.S. securities trading company Jane Street for alleged market manipulation, which has drawn attention to the vulnerability of retail traders.

SEBI's actions against entities like Jane Street aim to curb market manipulation and protect retail investors. However, these measures may also lead to short-term volatility as traders adjust to stricter regulations. Additionally, changes in F&O trading rules have resulted in a decline in derivatives trading volumes, both in premium and notional terms. While this might help reduce exposure for retail traders, it can also lead to decreased market liquidity.

On the positive side, SEBI's efforts to highlight the risks and improve financial literacy among retail traders could lead to a more cautious approach among investors, potentially reducing losses over time. The study focused on the top 13 stockbrokers, who collectively have a client base of 9.6 million unique traders, and the total market size of traders in the equity derivatives segment is 10.7 million traders.

It's worth noting that the tighter measures implemented by SEBI have not been shown to deter retail investors in derivatives trading. Despite these measures, the index options volume is up by 14% in premium terms compared to two years ago. However, the implementation of tighter measures between fiscal 2024 and fiscal 2025 has made derivatives trades more expensive.

Jane Street, the U.S. securities trading company that was barred from the local market and had $567 million of its funds seized by SEBI, has stated that it will challenge the ban, claiming it was involved in basic arbitrage rather than market manipulation.

India is the world's largest derivatives market, accounting for nearly 60% of the 7.3 billion equity derivatives traded globally in April. The study was conducted to address the losses and surges in derivatives trading among retail investors, and its findings underscore the need for continued vigilance and measures to protect retail investors in the equity derivatives segment.

1. The net losses experienced by retail individual traders in India's equity derivatives segment were predominantly attributed to increased participation in derivatives trading, inadequate financial literacy among retail investors, and structural risks inherent in the derivatives market.
2. To safeguard retail investors and address the losses in the equity derivatives segment, the Securities and Exchange Board of India (SEBI) has implemented measures such as monitoring turnover trends, addressing market manipulation, and improving financial literacy among retail traders.

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