New Delhi: A new study by the Securities and Exchange Board of India (SEBI) highlighting huge and rising losses individual traders are incurring in India’s derivatives market has raised alarm. But who are these traders and where do they come from?
The data from SEBI’s study released Monday shows the bulk of these traders are below the age of 30, earn less than Rs 5 lakh a year, aren’t from India’s top-30 most populous cities, and are predominantly male.
SEBI’s study of trading activity in India’s futures and options (F&O) market in the years from 2021-22 to 2023-24 found that individual traders faced a cumulative net loss of more than Rs 1.8 lakh crore over the period.
Young & inexperienced
The study said the proportion of traders in the F&O segment who were below 30 years jumped from 31 percent in 2022-23 to 43 percent in 2023-24, indicating a rising appeal of such trades among India’s youth. This is despite the fact that 93 percent of traders in this segment faced losses.
“It was observed that the age group of the traders was inversely proportional to the possibility of loss,” it noted. “As traders’ age increased, the percentage of loss-makers in F&O declined, indicating relative risk aversion, better risk management or the experience coming into play for elderly traders compared to young traders.”
The data found that 93 percent of young traders lost money on F&O trading in all three years analysed. In contrast, a relatively lower 79 percent of traders aged 60 years or more made losses in 2023-24, down from 83 percent a year earlier.
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Low incomes & high losses
Nearly 76 percent of individuals trading in the F&O segment—or about 65.4 lakh F&O traders—were “low income”, with declared annual incomes of less than Rs 5 lakh, while around 94 percent of total traders had declared annual incomes of less than Rs 10 lakh.
The proportion of low income traders has risen over the years, from 71 percent in 2021-22. This is despite the fact that this segment had the highest proportion of loss-makers. That is, 92.2 percent of low-income traders lost money in their F&O trades in 2023-24.
The “mid-income” category–comprising traders with annual incomes of Rs 5-25 lakh–was the next largest segment, making up 18 percent of F&O traders.
“With an exception of ‘Very High Income’ (incomes of more than Rs 1 crore a year) individual F&O traders, the percentage of loss-makers in F&O were inversely proportional to their income category,” the study said. “As traders’ annual income increased, the percentage of loss-makers in that category had declined.”
Two additional data points make this trend clear. The percentage of loss-makers from the “high income” traders’ category–with annual incomes of Rs 25 lakh to Rs 1 crore–was the lowest across all income categories, at about 75 percent.
In addition, the “Very High Income” F&O traders actually made consolidated net profits of Rs 259 crore in 2023-24, compared to all other categories, which made consolidated net losses that year.
An increasingly male preoccupation
About 86.3 percent of F&O traders in India in 2023-24 were males, up from 85.1 percent in 2021-22. The data also shows that a higher proportion of male traders lost money than women traders, and also faced higher average losses.
While 91.9 percent of male traders made losses in F&O in 2023-24, this proportion was a relatively lower 86.3 percent for women.
“In terms of average profit and loss, the average net losses by female traders were relatively lesser as compared to male traders,” the study said. “In FY24, the female traders made an average per person loss of Rs 75,973, while male traders incurred an average loss of Rs 88,804.”
Small cities & just a few states
A little more than half of all F&O traders in FY24 were from four states–namely Maharashtra (21.7 percent), Gujarat (11.6 percent), Uttar Pradesh (10.7 percent) and Rajasthan (6.2 percent). Uttar Pradesh, in particular, saw a strong growth in the number of F&O traders–of 186 percent over the 2021-22 to 2023-24 period.
UP was followed by Bihar (179 percent), West Bengal (177 percent) and Punjab (162 percent).
“In terms of state-wise pattern of average per person loss, it was observed that all the top four states with highest average per person loss were from southern region of India, namely Telangana (Rs 1.97 lakh per person loss), followed by Andhra Pradesh (Rs 1.45 lakh per person), Tamil Nadu (Rs 1.37 lakh per person) and Karnataka (Rs 1.35 lakh per person),” the study said.
The analysis also found that a rising share of F&O traders has come from beyond the top 30 cities by population. The study refers to these smaller cities as “B30 cities”. In 2023-24, 72.2 percent of total F&O traders were from B30 cities, up from 68.1 percent in 2021-22.
“In FY24, the F&O traders from B30 cities contributed 51.3 percent to total turnover of the individual category, and represented 68.1 percent of the total losses of the category,” the study said.
(Edited by Tikli Basu)
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