Sebi should educate investors but not over-regulate derivatives
₹331 trillion between 1 January, 2023 and 25 Nov, 2023 – that’s about 115% higher than in 2022. Leverage in derivatives is high and turnover is reported in nominal contract value so this looks more impressive than it is, but it is a very high volume anyhow. Around 4 million individual investors participated in the F&O segment.
F&O volumes comprise over 99.5% of all trading volumes on the stock exchanges. Between FY19 and FY24, F&O volumes have risen 34 times – an unbelievable growth rate. Retail participation has risen about eight times, from less than five lakh in FY19.
By comparison, the cash equity segment has an average daily volume of about ₹77,000 crore and has risen by around 110% since FY19. There are around 11-12 million direct retail equity investors. If we assume overlap, about a third of them play the F&O market as well.
A January 2023 Sebi report claimed 9 out of 10 F&O traders lose money, with about ₹56,000 loss per capita on average. The report noted that 90% of participants lost around ₹45,000 crore while 10% earned ₹6,900 crore. Most of the volumes are generated by index options and the most popular contracts are index options with weekly settlements.
Intuitively designed online-trading platforms have facilitated F&O trading and made it even more popular with retail investors. The high leverage makes it easy to make huge sums very quickly, and of course lose huge sums equally quickly. One way to discourage over-speculation would be to raise margins (thus reducing leverage), and of course Sebi can and should conduct campaigns to educate retail traders about the dangers of derivatives.
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