The Department of Economic and Policy Analysis report titled “Analysis of Profits & Losses in the Equity Derivatives Segment (FY22-FY24)” provides a comprehensive assessment of the financial performance of traders in the equity derivatives market, specifically in Futures and Options (F&O), on the National Stock Exchange (NSE). The analysis reveals stark contrasts between individual retail traders and institutional players like Foreign Portfolio Investors (FPIs) and Proprietary traders.
Key Findings:
- Widespread Losses Among Individual Traders:
- In FY24, 91.1% of individual traders (approximately 7.3 million) incurred losses, with an average loss of ₹1.2 lakh per person, inclusive of transaction costs. Over the three-year period (FY22-FY24), 1.13 crore individual traders suffered a total net loss of ₹1.81 lakh crore.
- The losses were particularly severe in the Options market, where 91.5% of traders faced losses, compared to 60% in Futures.
- Profits Concentrated Among Institutional Players:
- Institutional traders, including FPIs and Proprietary traders, earned gross profits of ₹33,000 crore and ₹28,000 crore, respectively, in FY24. These profits were largely driven by algorithmic trading, which accounted for 97% of FPI profits and 96% of Proprietary trader profits.
- In contrast, only 7.2% of individual traders made profits during the same period.
- Transaction Costs and Impact:
- Individual traders incurred over ₹50,000 crore in transaction costs during FY22-FY24, with brokerage fees being the largest component (51%). This burden worsened their financial outcomes, particularly for low-income traders.
- Demographic Shifts:
- A growing number of young traders (under 30) entered the market, increasing from 31% in FY23 to 43% in FY24, with 93% incurring losses. Additionally, more than 75% of traders had an annual income below ₹5 lakh, and 92.2% of these low-income traders experienced losses.
Conclusion:
The study highlights significant risks for individual traders in the F&O market, particularly in Options. Institutional players, equipped with advanced tools like algorithmic trading, continue to dominate profits, while retail traders struggle with high transaction costs and speculative strategies. The findings call for greater financial education, improved risk management tools, and potential regulatory reforms to protect individual investors from the high risks of derivative trading.
