Big Losses In The F&O Game Of Quick Gains

For many small traders, the lure of quick profits in Futures and Options (F&O) is hard to resist. But the reality is far more challenging and ridden with risks

- Rishabh Raj

When the Indian stock market saw a sudden boom post the Covid 19 pandemic, so did the number of investors. This was the period when more and more people became comfortable with using smartphones, and brokerage apps simplified the demat account opening process. Incidentally, the number of demat accounts has jumped from 39.3 million in 2019 to 192.4 million today—a four-fold growth in just five years.

Markets and businesses celebrated this peaking interest of retail investors in the markets.

However, there was a small problem. Among the new investors, a large chunk constituted of people who were big on aspirations, but small on cash. This set of investors was drawn to futures and options (F&O) trading, tempted by the idea of turning small sums into big profits.

Says Sahaj Agrawal, senior vice president and head of derivatives research, Kotak Securities: “While derivatives have long been a part of the financial landscape, the post-Covid period saw an unprecedented surge in retail interest, particularly in F&Os. Derivatives, by design, serve purposes, such as hedging, arbitrage, and active trading. However, the current retail participation is overwhelmingly skewed toward speculative activity.”

While the idea of making huge profits through F&Os seems promising, the reality is challenging, to say the least. That's because F&O trading involves speculation, which makes it highly risky. The lure of high returns often blinds novice investors to the risk they face. Besides, the process can be very complicated for retail investors, who end up with losses in most cases.

According to a study by the capital markets regulator, the Securities and Exchange Board of India (Sebi), released in 2024, 91.1 per cent of individual traders (around 7.30 million traders) lost money in the F&O segment in FY24. Only about 1 per cent of individual traders earned profits exceeding ₹1 lakh after adjusting for transaction costs.