Needless worry over retail investors in F&O

Forty per cent of F&O traders are under 30 years of age. This suggests that unemployed youth are turning to stock trading, probably in the period, before landing a permanent job
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How do you visualise a typical trader in equity futures and options segment? If you thought he was a geek sitting in front of a laptop full of numbers and charts, putting through trades in a nervous frenzy, you would be wrong.

A report put out by SEBI helps us etch a more accurate profile of the supposedly hapless individual traders who are burning money in the equity derivative market and need to be protected from the sharks.

The typical trader is more likely to be male, since only 14 per cent of these traders are women. He could be staying in a smaller city such as Bhiwandi or Tirunelveli or Bhilai. The study shows that 72 per cent of F&O traders come from beyond the top 30 cities. He is likely to be punching trades on his smartphone, while working in his shop or while watching a movie or hanging out with friends.

Most of these traders do not have much capital to burn. Around 75 per cent of the individuals trading in stock derivatives had income of less than ₹5 lakh. This could imply that many traders used derivative trading to supplement their existing stream of income. Four out of ten traders were quite young, less than 30 years old.

Given This background, why is SEBI worried about individual investors in F&O?

Why is SEBI worried?

The stock market regulator is taking its primary objective, “to protect the interests of investors in the securities market”, rather too seriously. It has concluded that derivative trading is harmful for the finances of small investors, and they need to be kept away from here. This conclusion was reached based on studies done by SEBI. One such study revealed that between FY22 and FY24, 1.13 crore unique individual traders had incurred net loss (including transaction costs) of ₹1.81 lakh crore in F&O. Around 93 per cent of individual traders had made an average loss of ₹2 lakh per person in the three years.

Individual investors entering the stock market have been the counterparty to large brokers and foreign portfolio investors who made big bucks in This period. The SEBI study shows that proprietary traders (brokers trading on their own account) recorded profits of ₹33,000 crore in FY24. They were followed by foreign portfolio investors who recorded profits of ₹28,000 crore. While NRIs and PMS schemes also incurred losses in FY24, individuals made the largest loss of ₹41,500 crore.

Not substantial enough

Despite these numbers, there is a strong case for SEBI to not spend too much time worrying about individual investors in F&O.

One, the total number of retail traders in F&O is not significant enough to warrant so much alarm. There were 96 lakh individuals in equity derivatives in FY24, according to SEBI. The number of total unique registered investors on the NSE, including cash and derivative segment, was 10.9 crore as of December 2024. The numbers suggest that only 9 per cent of the total investor pool is dabbling in futures and options and 91 per cent are participating in the cash segment only. Most of the investors in the cash segment are long term investors.

Two, if we consider the number of derivative traders as a proportion of total population in the working age, they account for less than one per cent.

Given that the worker population ratio in India is just 58 per cent, the remaining 42 per cent of the population could benefit from some occupation that keeps them engaged on a part-time or full-time basis.

Stock market trading is a kind of entrepreneurial activity, which has the potential to become a significant channel of income generation going forward. For instance, once the trader becomes familiar with the nuances of stock market, he could become a sales personnel for large brokers, mutual funds, initial public offering, he could also engage in educating others about stock market activity, etc.

Three, over 40 per cent of these traders are less than 30 years old and over 70 per cent have less than ₹5 lakh as income. This suggests that unemployed youth are turning to stock trading, probably in the period, before landing a permanent job. This is not a bad thing. Data also shows that only the top 3.5 per cent of loss-makers, faced an average loss of ₹28 lakh per person during FY22 to FY24. The losses of the majority may not be too big, given their limited capital.

Four, it is important that stock markets have more participants to impart depth and improve price discovery. Individual investors currently account for about a third of the derivative trading volume. But they form the largest cohort, as 99.8 per cent of total traders in the futures and options segment are individuals.

Five, India is a free country, and its citizens have the right to work in whichever sphere they choose. Trading in a regulated atmosphere such as stock market is much better than trading on unregulated platforms for cryptocurrencies, forex trading, online gaming, etc. Given that it is difficult to curb the human propensity to take risks, it may be better to allow trading in SEBI regulated stock exchanges.

Making government richer

It is also important to note that the increase in trading by individuals is making the government richer.

As equity derivative volumes boomed in the last three years, securities transaction tax collection has also been surging. STT amounted to ₹55,000 crore in the revised estimate for FY25, as against the budgeted figure of ₹37,000 crore. Further, the Centre expects STT to grow to ₹78,000 crore in FY26, bolstering its tax revenue.

SEBI data reveals that between FY22 and FY24, ₹50,000 crore was paid as transaction cost by individual investors, of which, half was paid as brokerage to stockbrokers and ₹13,800 crore was paid to the government as securities transaction tax. The stock exchanges collected ₹10,200 crore as their fee.

Stock exchanges such as the NSE have also been beneficiaries of this increase in retail participation. Over 70 per cent of the turnover of the NSE is derived from transaction charges collected from investors. Of this, the equity options segment contributes 78 per cent with the cash and equity futures segments accounting for the rest.

Given the limited participation of the overall population in equity F&O, SEBI could stop worrying about investors incurring losses in this segment. It could the rites of passage for becoming a seasoned stock market trader

Published on May 15, 2025