Zerodha founder Nithin Kamath has defended the brokerage's decision to continue offering futures and options (F&O) and leveraged products such as Margin Trading Facility (MTF), stating the company has never pressured customers into trades that could be harmful to them. According to reports from TradingQnA, Kamath made these comments during a discussion about Zerodha's approach to derivatives, falling F&O participation and the company's plans to diversify beyond its brokerage business.
The defense comes against the backdrop of fresh data from market regulator SEBI showing that 87.7% of individual F&O traders lost money in FY26, with options accounting for 92% of total individual trader losses. As reported by SEBI, individual traders lost a combined ₹91,685 crore in equity derivatives during the year, even as the number of active participants fell 18% to 87.5 lakh. This data highlights the significant challenges facing retail derivatives trading in India's financial markets, with the 18% decline in active F&O participants indicating substantial reduction in retail derivatives trading activity. The latest SEBI study, released on August 20, 2026, confirms that this marks the first annual decline in individual F&O traders since FY16, with the market losing nearly one in five of its individual traders in a decade.
According to SEBI's comprehensive study, options trading remains the primary driver of retail losses, with 99.3% of individuals trading in options at least once during the year and 93% trading only options. The regulator found that 87.7% of traders made losses in options trading, compared to 66% in futures trading, with options accounting for 92% of total individual trader losses. Among traders who lost money, the average loss was ₹1.47 lakh, which is 21% higher than the average profit of ₹1.22 lakh earned by profitable traders. Notably, 23% of traders were responsible for nearly 90% of these losses, indicating significant concentration of risk among a small subset of participants. The data reveals that 23% of traders accounted for nearly 90% of total losses, with the roughly 4.4 lakh traders who lost more than ₹10 lakh each averaging a ₹30 lakh loss apiece. Within the small-portfolio segment alone, small-portfolio traders with high turnover made up just 13% of all EDS traders, yet contributed 52% of total losses, trading at multiples exceeding 10,000 times their portfolio value versus roughly 12 times for large-portfolio traders.
The data reveals concerning trends in retail participation demographics, with investors below 30 accounting for 43% of participants in FY26, up from 31% in FY22, but nearly 89% of them losing money. As per SEBI, traders earning below ₹5 lakh annually made up around three-fourths of participants and accounted for 53% of total losses. The market has also expanded beyond major financial centers, with traders from outside India's top 30 cities now making up nearly two-thirds of individual participants and around half of total turnover. SEBI noted that frequent trading has been associated with high losses, particularly among younger traders, low-income earners, and those with small equity holdings. Traders with annual turnover below ₹10,000 fell 37%, while those trading above ₹10 crore annually actually rose 3%, even as turnover in that bracket dipped 5%. The market's shrinking base is skewing toward its most active, highest-turnover users.
Despite retail challenges, the equity derivatives market continues to be dominated by professional participants. Proprietary trading desks posted gross trading profits of ₹44,483 crore in FY26, followed by FPIs at ₹13,896 crore, corporates at ₹8,092 crore, and mutual funds at ₹2,595 crore. Notably, 99% of FPI and proprietary trading profits came from algorithmic trading entities, with FPI algo entities on NSE rising to 372 from 306 two years earlier. Algorithmic participation among institutions kept climbing, with FPI algo entities on NSE rising to 372 from 306, proprietary algo entities to 323 from 279, and DII algo entities more than doubling to 69 from 33. However, among individuals, only about 15% used algo trading, and SEBI flagged that even this figure is inflated by broker-side auto square-offs rather than genuine self-directed algo strategies. The regulator's November 2024 measures, restricting weekly expiries to one index per exchange, raising contract sizes, and tightening margin norms on expiry day, appear to have had measurable effects, with zero-days-to-expiry contracts in index options turnover falling to 59% in FY26 from 70% in FY25.
