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Informist, Tuesday, Aug. 25, 2026

 

 

By Rajesh Gajra

 

MUMBAI – The use of algorithmic orders by traders in equity futures and options is directly correlated with the profitability of their trades. The latest Securities and Exchange Board of India report on profits and losses in equity futures and options trading clearly shows this pattern.

 

Of the total number of individual equity derivatives traders, 15% used algorithms in their trading in 2025-26 (Apr-Mar), according to the latest analytical report released by SEBI Thursday. This proportion is up from 13% in FY24, according to SEBI's previous analytical report, released two years ago.

 

But the 15% growth understates the extent of algorithmic trading tools used by individual traders, as the study counted as algorithmic only those trades executed through a broker's algorithm terminal. Some broker and non-broker portals and mobile applications provide artificial intelligence-based algorithmic models that allow users to back-test derivatives trading strategies using actual stock exchange data.

 

Independent traders in the equity derivatives community generally agree with the emerging trend of increased use of algorithmic systems for placing orders. The increase is more pronounced in equity derivatives, whereas in the equity cash market, the proportion of algorithmic trades was nearly unchanged at 12.7% in FY26, according to data in SEBI's annual report for FY26.

 

WHY ALGO?

Previous SEBI studies highlighted the large proportion of individuals who lose money in equity derivatives trading. In SEBI's FY24 study, the proportion of individual futures and options traders who lost money, after factoring in transaction costs, was 91.1% in FY24, 91.5% in FY23, and 90.2% in FY22.

 

However, according to the latest SEBI study, the share of loss-making individuals in equity derivatives trading fell to 87.7% in FY26 from 90.9% in FY25, while the proportion of individual traders using algorithms rose. At the gross profit or loss level, or before transaction costs, individual traders' aggregate gross loss in equity derivatives fell by 26% to INR 722.4 billion in FY26. This is notable, especially since individual traders' gross equity derivatives turnover declined only 5% in FY26.

 

The real opportunity for individual traders from algorithmic trading isn't speed or automation alone — it's discipline, according to Apurva Sheth, head of market perspectives and research, SAMCO Securities. "Algorithms can enforce stop-losses, standardise position sizing and take emotion out of execution," Sheth said.

 

Following stricter measures introduced by SEBI in November 2024, including removing weekly expiry derivative contracts from all but one benchmark equity index per exchange, retail traders became more selective, according to Vishal Mehta, an experienced independent algorithm trader and a certified market technician under CMT Association. "In the last one and a half years, a lot of individual futures and options traders, including those who do only options buying, have realised that the right way to go is the systematic trading route, using algorithms or algorithm-based tools, which help control emotions," he said.

 

Individual traders who do not use algorithm tools or automated execution are typically discretionary traders who learn strategies and implement them manually. "In discretionary trading, individuals can learn good derivatives strategies, but the psychology required to be disciplined varies widely among them," according to Tanmay Kurtkoti, experienced options trader and a founding member of QC Alpha Technologies Pvt. Ltd., which develops market volatility trading models.

 

When Kurtkoti started trading in equity derivatives, he was a discretionary options trader. But today, only 3-5% of his trades are discretionary, while the remaining 95-97% are systematic and use algorithms. "Retail algo products, which are widely available in the last one year, will definitely enable individual traders to do systematic options trading," according to Kurtkoti.

 

Individual traders are still far less equipped with tools and systems compared with proprietary traders and foreign portfolio investors, the other two largest investor categories by profits and losses from equity derivatives trading. Algorithmic trading tools help retail traders improve their capabilities by showing them whether a particular strategy is working and giving them an opportunity to rework their strategies, according to Chintan Jaggi, a founding member of AlgoTest.

 

LOSS TO PROFIT?

Experienced equity derivatives traders, whether they use algorithm tools or not, have differing views on whether algorithmic trading can turn a loss-making individual trader profitable. Retail options traders may become profitable by adopting a systematic, algorithm-based trading approach, Kurtkoti said. Mehta credited the market regulator with pushing individual equity derivatives traders into a corner through its measures to curb highly leveraged speculative trading. This has improved retail broker infrastructure, as many brokers have begun offering algorithmic trading tools and services to equity derivatives clients.

 

Sheth, however, framed the issue differently. "Algorithmic trading can't guarantee profits, but it can eliminate the avoidable mistakes that undo so many retail traders. One cannot claim that the probability of retail investors' profitability will rise, but going ahead, if we see more adoption of retail investors embracing algo trading, their losses can definitely be brought under control," he said.

 

Efforts to use algorithmic tools and services "may make retail traders a bit smarter," Jaggi said. Whether they can turn profitable is a hard call to make simply because trading as an activity itself is very difficult, he said.

 

Going ahead, FPIs and proprietary traders are likely to face greater competition from the retail traders. But will the balance of fortunes shift? If retail traders turn profitable, will FPIs or proprietary traders incur losses?

 

Profits of one trader category come from the losses of another, and so far the FPIs and proprietary traders have made profits in equity derivatives trading while individual traders have incurred losses. But in FY26, FPIs' aggregate gross trading profit fell by 55% to INR 139 billion, and proprietary traders' aggregate gross profit declined by 3% to INR 444.8 billion, while individual traders' aggregate gross loss fell by 26% to INR 722.4 billion.

 

The battle for profits among equity derivative traders has been uneven so far. As Kurtkoti put it, individual traders are armed with knives and swords, while institutional and proprietary traders are armed with Sten guns. But algorithmic tools and trading systems could help level the playing field.  End

 

Edited by Saji George Titus

 

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