The Securities and Exchange Board of India has released fresh findings on individual participation in the equity derivatives market, highlighting the continuing risks faced by retail traders.
According to SEBI’s study covering financial year 2025 26, 87.7 percent of individual traders in equity derivatives incurred losses during the year. Although the overall losses recorded by individual traders declined compared with the previous financial year, the majority of participants continued to lose money.
The findings underline the challenges faced by retail investors who actively participate in futures and options trading.
Individual trader participation declined
SEBI’s study found that the number of individual traders participating in the equity derivatives segment fell by around 20 percent during FY26.
The decline indicates that a significant number of retail participants have reduced or stopped their activity in the derivatives market after experiencing losses or facing the risks associated with short term trading.
According to the study, around 4.6 million traders who participated in equity derivatives during FY25 did not return to the segment in FY26. This was higher than the approximately 2.6 million traders who exited during the previous year.
Retail traders still recorded substantial losses
Despite the decline in participation, losses among individual traders remained significant.
SEBI said aggregate net losses of individual traders fell to approximately Rs 91,685 crore in FY26 from around Rs 1.12 lakh crore in FY25.
While the reduction in total losses may appear positive, the fact that nearly nine out of every ten individual traders still lost money remains a major concern.
The data demonstrates the difficulty retail investors face when attempting to generate consistent returns through equity derivatives.
Options trading remains a major risk
Options trading has become particularly popular among retail investors because it allows traders to take positions with comparatively smaller amounts of capital.
However, options can also expose traders to substantial losses, especially when positions are held for short periods or close to expiry.
The SEBI study highlights the continued concentration of trading activity around derivative expiry dates. Around 59 percent of index options turnover took place on the expiry day, while approximately 75 percent occurred within one day of expiry.
This concentration indicates the extent to which short term and expiry focused trading has become part of the derivatives market.
Why expiry day trading is risky
Expiry day trading can involve rapid price movements and significant volatility.
Options can lose value quickly as an expiry date approaches, particularly when market conditions move against a trader's position.
For individual investors without sufficient knowledge of option pricing, volatility and risk management, frequent expiry day trading can result in repeated losses.
SEBI's findings therefore provide an important warning to investors who consider derivatives trading as a quick way to generate income.
Institutional traders showed a different outcome
The performance of individual traders contrasted sharply with that of some larger market participants.
According to the SEBI study, proprietary traders recorded gross trading profits of approximately Rs 44,000 crore in FY26.
Foreign portfolio investors recorded around Rs 14,000 crore in gross trading profits.
The regulator also found that algorithmic trading accounted for 99 percent of the profits generated by foreign portfolio investors and proprietary traders in the segment.
The difference highlights the challenges faced by individual investors competing in a market where sophisticated participants use advanced technology and systematic trading strategies.
SEBI has introduced several measures
The regulator has already taken several steps to reduce excessive speculation in equity derivatives.
These measures include increasing contract sizes for index derivatives, reducing the frequency of index expiries and requiring upfront collection of option premiums.
The objective of these measures is to discourage excessive short term speculation and strengthen safeguards for individual investors.
The latest study suggests that despite regulatory interventions, retail participation continues to carry substantial risks.
Overall losses have declined
One important aspect of the latest findings is that total losses among individual traders declined compared with the previous year.
Individual traders lost approximately Rs 91,685 crore in FY26, compared with around Rs 1.12 lakh crore in FY25.
However, the lower aggregate loss figure does not mean that derivatives trading has become safe for retail investors.
The proportion of traders who lost money remained extremely high at 87.7 percent.
Retail investors need greater awareness
The findings underline the importance of financial education before entering the futures and options market.
Unlike traditional equity investing, derivatives involve complex instruments, leverage, expiry dates and rapidly changing prices.
Investors can lose money quickly if they do not understand the risks associated with the positions they take.
The SEBI data therefore serves as a reminder that derivatives should not automatically be viewed as a simple method of generating regular income.
Algorithmic trading changes the market
Another significant finding concerns the growing influence of algorithmic trading.
SEBI found that 99 percent of the profits earned by foreign portfolio investors and proprietary traders were generated by algorithmic trading entities.
Algorithmic systems can process market information and execute trades at speeds that are difficult for individual investors to match.
This difference in technology and trading capability can make the derivatives market particularly challenging for retail participants.
Market activity remains concentrated around expiry
The concentration of trading around expiry dates is another important finding from the study.
With 59 percent of index options turnover occurring on the expiry day and approximately 75 percent within one day of expiry, a large portion of market activity is concentrated in a very short period.
Such periods can experience heightened volatility and rapid changes in option prices.
For individual traders, this can increase the possibility of both large gains and significant losses.
What the SEBI study means for investors
The latest findings do not suggest that every individual trader will lose money in derivatives.
Instead, the data demonstrates that the probability of losses has remained high among retail participants.
Investors considering futures and options trading need to understand leverage, option premiums, volatility, expiry risks and position sizing before taking trades.
They also need to recognise that previous profits do not guarantee future returns.
A warning for new traders
The popularity of options trading has increased significantly among retail investors in recent years.
Social media discussions and online trading platforms have also made derivatives more accessible.
However, easy access does not necessarily mean that these products are suitable for every investor.
The SEBI study provides evidence that a large majority of individual participants continue to face losses.
New traders should therefore avoid making trading decisions solely on the basis of social media tips, short term market predictions or promises of quick profits.
Conclusion
SEBI’s FY26 study has once again highlighted the risks associated with retail participation in India's equity derivatives market.
Around 87.7 percent of individual traders incurred losses during FY26, while their combined net losses stood at approximately Rs 91,685 crore. Although the overall losses declined from the previous year, the proportion of losing traders remained very high.
The decline in individual participation, heavy concentration of options trading around expiry dates and strong performance of algorithmic institutional traders are among the key findings of the study.
For retail investors, the findings reinforce the importance of understanding derivatives, managing risk carefully and avoiding speculative trading based on expectations of quick returns.
This article is for news and informational purposes only and is not investment advice.