Clipped from: https://www.thehindubusinessline.com/opinion/editorial/lambs-to-slaughter/article69799651.ece
Retail derivative trades dip, but huge losses continue
Retail investors have not become smarter at derivatives trading | Photo Credit: HEMANSHI KAMANI
If anyone needed evidence that India’s derivative market is no place for retail folk, data contained in SEBI’s (Securities and Exchange Board of India) recent interim order against the Jane Street group provided it. SEBI found that Jane Street entities pocketed gains of about ₹36,500 crore from derivatives trades over a two-year period, mainly by exploiting infirmities in India’s cash and equity derivative markets. If one global quant firm used this route to make big profits, it is likely that others do too. Derivatives trading is a zero-sum game. Therefore, it is Indian retail investors as counter-parties to these trades, who are footing losses. SEBI’s latest study on trading patterns in equity derivatives shows that its active regulatory interventions to keep individual traders off this segment have yielded mixed results.
Since 2024, SEBI has initiated a host of measures to discourage retail investors from trading in derivatives. It has asked exchanges to rationalise weekly contracts and streamline expiry days, hiked contract sizes two-to-threefold and mandated upfront collection of option premiums, while tightening monitoring. The December 2024 to May 2025 period saw average daily traded value in the equity derivatives segment fall by 5 per cent and index options trades fall by 9 per cent. This suggests a cooling off from the 23 per cent and 72 per cent annualised growth rates in these two segments in last five years. But as the cash market also saw an 11 per cent decline in trades in this period, it is tough to gauge if the muted activity was due to regulatory tightening or bearish markets.
Individual traders cut back their equity derivative trades by 11 per cent in December 2024 to May 2025 compared to the same period last year. The number of unique traders dabbling in derivatives also fell 20 per cent, from 84 lakh to 67.5 lakh. About 8 lakh individuals punting small sums of up to ₹1 lakh accounted for much of this decline. This is good news. However, if retail investors moderated trading mainly because of the pause in the bull phase, they may return after the market’s recent rally. Also worrying is the fact that despite fewer investors trading derivatives, retail losses in F&O at ₹1.05 lakh crore in FY25, were 40 per cent higher than FY24. This number has steadily mounted from ₹40,820 crore in FY22. There is also no change in the proportion of individual traders making losses in F&O at over 90 per cent since FY22. This shows that retail investors are not getting more skilled at derivative trades..
These trends present a hard choice for SEBI. A strict crack-down, with measures such as a complete phase-out of weekly options contracts, can dent commercial prospects for the many players dependent on the capital market ecosystem. But allowing retail investors to be led to slaughter by global quant firms leads to a flight of precious household savings from India. SEBI can perhaps look at a tighter product suitability framework and more restricted retail entry norms into derivatives.
Published on July 11, 2025
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