9 out of 10 individual traders faced losses in equity F&O in FY22-FY24

Over 9 out of 10 individuals or around 93% of traders in the equity futures and options (F&O) segment continue to incur significant losses, an updated new study by the Securities and Exchange Board of India (SEBI) has revealed. The combined losses of individual traders exceeded ₹1.8 lakh crore in three years between FY22 and FY24, the study shows. Only 1% of individual traders managed to earn profits exceeding ₹1 lakh, after adjusting for transaction costs.

The SEBI study follows up on its report in January 2023, which found that 89% of individual equity F&O traders lost money in FY22. In light of the increased participation of individual investors in both equity and equity derivatives markets, the current study was undertaken to analyze profit and loss patterns for individuals in F&O from FY22 to FY24, and for all the categories of investors in F&O in FY24 so far.

In terms of income profiles, SEBI finds that over 75% of individual F&O traders in FY24 had declared an annual income of less than ₹5 lakh. Ironically, despite consecutive years of losses, over 75% of loss-making traders continued trading in F&O.

Among the key findings, the SEBI study says individual investors saw high loss rates, with 93% of over 1 crore individual F&O traders recording average losses of around ₹2 lakh per trader (inclusive of transaction costs) from FY22 to FY24.

The top 3.5% of loss-makers, around 4 lakh traders, faced an average loss of ₹28 lakh per person in the same period.

With regards to profit distribution among different classes of investors, proprietary traders and FPIs booked gross trading profits of ₹33,000 crore and ₹28,000 crore, respectively, in FY24 (before accounting for transaction costs). Against this, individuals and others faced ₹61,000 crore in losses in FY24.

Thus, as the study shows, most profits were generated by larger entities that used trading algorithms. "97% of FPI profits and 96% of proprietary trader profits came from algorithmic trading." In terms of transaction costs, on average, individual traders spent ₹26,000 per person on F&O transaction costs in FY24. In the said three-year period, individuals collectively spent about ₹50,000 crore on transaction costs, with 51% being brokerage fees and 20% being exchange fees.

The proportion of young traders (below 30 years) in the F&O segment rose from 31% in FY23 to 43% in FY24. "Individuals from beyond top 30 (B30) cities made up over 72% of the total F&O trader base, a higher proportion compared to mutual fund investors, 62% of whom are from B30 cities."

The current study also comes following the regulator's report this month, which found "flipping" behaviour among individual investors. It was found that 54% of IPO shares allotted to individual investors were sold in a week.