Sebi's latest F&O study reveals that behavioral biases, not just risk, are the primary drivers of trading losses. According to Mint, the study shows that overconfidence and false learning are the most significant factors keeping traders overconfident and chasing losses. Among traders with one consecutive year of participation, 91% made losses, with the share rising to 96.5% at four years. Among traders active through all five years from FY22 to FY26, only 0.5% were profitable in every year, demonstrating that what survives repetition is not skill but conviction. The study found that 93% of traders were only options buyers, with options buyers having the highest incidence of loss at about 90%. Options buyers' median return on capital employed was minus 114% in FY26, with half losing more than the entire capital they had put to work. Traders also tend to take credit for wins and blame luck for losses, with the study noting that this thinking explains the wider pattern of continued trading despite mounting losses.
For the first time since fiscal 2016, the retail army is retreating from India's derivatives market. According to NDTV Profit, active individual traders dropped by 18% year-on-year, falling from a record 1.06 crore in fiscal 2025 to 87.5 lakh in fiscal 2026. The most concerning indicator is the exit rate, with nearly 46 lakh traders abandoning the segment entirely in fiscal 2026, representing a 76% surge in market exits compared to the previous year. Net additions to the trader base turned profoundly negative, shedding 24.9 lakh participants, reflecting the sheer scale of wealth destruction. This mass capitulation comes after years of explosive growth fueled by pandemic-era boredom, mobile trading apps, and zero-day-to-expiry contracts. In the latest data from SEBI's study, active individual traders declined about 20% to 78.6 lakh in FY26 from 98.1 lakh in FY25, while new entrants dropped about 40%. Average loss per trader rose marginally to about ₹1.17 lakh during the year, reinforcing the challenging environment for retail participants.
The cooling down in India's equity derivatives market in FY26 was not just reflected in the fall in retail participation or losses, but also showed up on the profitable side of the trade. Proprietary traders recorded gross trading profits of ₹44,483 crore in FY26, down just 3% from ₹45,955 crore a year earlier, according to SEBI's latest study. However, foreign portfolio investors saw their profits plunge 55% to ₹13,896 crore from ₹31,085 crore in FY25, while corporate profits fell 22% to ₹8,092 crore, mutual fund profits dropped 54% to ₹2,595 crore, and partnership firms and LLPs fell 38% to ₹2,953 crore. Individual traders remained the only major category to record an aggregate loss, with their gross trading loss falling 26% to ₹72,243 crore in FY26 from ₹97,882 crore in FY25, while their net loss after transaction costs stood at ₹91,685 crore, down 18% from the revised ₹1.12 lakh crore in FY25. SEBI's latest study shows that 88% or 9 out of 10 individual F&O traders still incurred losses in FY26, with options accounting for 92% of aggregate losses.
Nearly two years after SEBI launched measures to curb excessive retail speculation, industry participants are increasingly backing tighter eligibility and suitability norms for futures and options trading. According to The Hindu BusinessLine, Dhiraj Relli, Managing Director and Chief Executive Officer of HDFC Securities, said there is a need for some more stringent suitability exercises, stating he is an advocate of suitability. The latest SEBI data have revived calls for stricter entry norms, with industry participants advocating measures such as income thresholds, investor qualification tests and accredited investor status. A key finding has been that derivatives traders with larger underlying equity portfolios tend to fare better than those with little or no cash-equity exposure, strengthening the argument for suitability-based access. Ananth Narayan, former SEBI whole-time member, said the debate on the derivatives framework should continue, noting that SEBI has taken significant measures and it is appropriate to assess their impact.
The study reveals alarming patterns of traders continuing to trade despite mounting losses. Only 15.4% of trader-quarters in the study were profitable, with the median gain in a winning quarter at ₹4,366 and the median loss in a losing quarter at ₹10,525, more than twice as large. Traders with cumulative profits above ₹10 lakh during FY22 to FY24 continued trading at a rate of 88%, while traders with cumulative losses above ₹10 lakh also continued at 88%. Traders whose outcome was below ₹1 lakh continued at only 53 to 55%. The study found that among the large past losers who continued, more than 95% lost again, demonstrating the persistence of behavioral biases. Traders who lost more than ₹1 crore in derivatives held a median cash equity portfolio of about ₹138, with the derivatives account being the portfolio rather than a slice of it. According to Mint, most traders, about 93%, bought options without selling them, with a cheap option feeling much like a lottery ticket that leads people to overestimate their chances of a large gain.
The findings have prompted regulatory intervention to address the concerning trends in retail derivatives trading, while regulators face a delicate balancing act. SEBI is still grappling with concerns that prompted its intervention in October 2024, namely heavy retail losses, extremely high volumes in index options on expiry day and the overwhelming preference for ultra-short-term trading strategies. As per The Hindu BusinessLine, Ananth Narayan noted that a substantial part of revenues of exchanges, clearing corporations, brokers and other intermediaries is linked to derivatives activity, and sharp changes can have consequences for liquidity, market-making and the broader market ecosystem. The challenge is to improve investor protection without creating arbitrary barriers to participation. Ashish Nanda from Kotak Securities said the detailed data could encourage behavioural changes among retail participants, with a push towards the cash-market helping retail investors create a portfolio with long-term perspective.
