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Informist, Monday, Sept. 7, 2026

 

By Rajesh Gajra

 

MUMBAI – The analytical report on the trading profitability of individual traders in equity futures and options released by the Securities and Exchange Board of India on Aug. 20 was the third such report in four years. There are some shortcomings in the focus and data in these reports that weaken the quality of the findings and calling for course correction on SEBI's part.

 

The predominant focus in all three reports has been the individual equity F&O trader. The latest study said individual traders' average net loss per person increased marginally to INR 117,000 in the financial year 2025-26 (Apr-Mar) from INR 113,000 in FY25.

 

The relentless focus on the individual trader by a market regulator is unusual. SEBI's argument that over 99% of F&O traders are individuals is not meaningful. There are lakhs of stock market traders as against a few hundred institutional and proprietary traders. The criterion of number of traders is not the right way to determine the focus for such a critical study.

 

The heft a trader category carries is what should matter. Options, in particular, are highly leveraged products, and the larger influence a particular class of traders has on the turnover, the more it contributes to potential systemic risk.

 

The latest SEBI report said proprietary traders, or prop desks as they are called by market participants, accounted for 60% of total equity futures and options turnover, and foreign portfolio investors contributed 7%. This implies the rest of the 33% of the turnover was from individuals, except for the 1-2% that mutual funds account for. SEBI did, however, provide the split of the data and say individual traders' share of the turnover was 38% in index options, 30% in index futures, 26% in stock options, and 13% in stock futures.

 

With two-thirds of the equity derivatives turnover coming from prop desks and FPIs, most of whom use high frequency or algorithmic trading tools, SEBI's deep-dive analysis should have covered them too. The fact that these two trader categories make profits from equity F&O does not justify ignoring their trading patterns. The Jane Street case of July 2025 had highlighted how foreign investors' trading patterns emanate from manipulative behaviour. This means there is a need for SEBI to have a concurrent focus on all major categories of investors rather than focusing only on retail traders.

 

SEBI also cited global research reports to justify the main finding of its study that individual traders incur poor profits in equity F&O trading. The first two reports it highlights pertain to Brazil and South Korea. The problem with these two and other global studies SEBI quotes from is that they do not cover both options and futures trading. Furthermore, nearly all of them are outdated and were conducted by private individual researchers, not by the market regulators in those countries.

 

The Brazilian study, for instance, is from 2019-2020 and covered only the equity futures market in that country. It was carried out jointly by three researchers from academia. The study's main finding was that 97% of all individuals who persisted for more than 300 days of futures trading lost money. The South Korean paper that SEBI pointed to in its latest report is older, from 2009-2012, and focused only on index futures trading. The study's main finding was that individual investors were more susceptible to riding losses longer and rushing to realise gains than institutional investors. But it also found that this tendency reduced with trading experience and sophistication.

 

These two studies looked only at equity futures trading. A key finding in SEBI's latest study is that loss-maker incidence "remained substantially higher in options (87.7%) than in futures (66.0%), consistent with options' outsized share of overall losses". No global study has been quoted by SEBI that points to individual traders' profitability outcome from options trading.

 

Another weakness in SEBI's analysis of F&O trading by individual traders is that it looks only at the average of profits or losses by individual traders. This is not enough. There were 8.75 million active individual traders in equity derivatives in FY26 and 10.62 million in FY25. The individual trader category has a vast population, and providing the median of their profits and losses would have added value to the study.

 

Experienced stock market traders have also pointed out since SEBI's first study was released in January 2023 that a loss in options or futures trading should not be looked at in isolation. There are certain individual traders who run positions concurrently in the cash segment and the equity derivatives segment. The net outcome is what matters, not just how they fared in one or the other segment. SEBI's study ignores this, though it has access to cash market trading data of these traders.

 

For instance, in the Jane Street matter, the market regulator had, in its interim order of Jul. 3, 2025, given a profit and loss summary made by four Jane Street entities. Collectively, they had made a huge profit from their index options trades, a small loss in index futures, a small profit in stock options, a moderate loss in stock futures, and a small loss in their concurrent cash market positions. Jane Street's case may be institutional, but individual traders who dabble in both derivatives and cash market trading could also be taking concurrent positions in both.

 

SEBI also skewed the latest study's finding when it claimed the average loss among individual trader loss-makers at INR 14­7,000 was 21% higher than the average profit of INR 122,000 among profit-takers. This claim sidesteps a key difference in trading dynamics as far as options buyers and sellers are concerned. An options seller's position is exposed to unlimited loss and fixed upfront gain at the time of trade, while an options buyer's loss is capped and profit is unlimited. This means a successful options buyer will make more profit than a successful options seller, and an unsuccessful options buyer will lose less money than an unsuccessful options seller.

 

SEBI must also release the raw data files pertaining to its analysis. The profitability outcome study is based on clients' trading data in equity F&O of the largest 15 brokers. The raw data files must be made available online after redacting the names of the brokers and clients. This will help to improve understanding of the market segment which has by far the largest trading volumes.

 

SEBI released a second report this time, calling it an analysis of trading behaviour of individual traders in the equity derivatives segment. The problem with this report is that a portion of the data on which the analysis was done was based on a randomly selected sample of just 5,050 individual traders. This is not an adequate sample size given the size of the market and leaves unanswered the question as to what was the basis for the selection of the sample.

 

The data were used in the report to classify traders on their trading behaviour and to estimate returns relative to capital employed. To SEBI's credit, it did say the findings associated with the small sample should be interpreted with caution. It would have been better, however, if SEBI had not based any analysis on the small sample.

 

SEBI must actively take feedback from individual traders, other categories of traders, and other market participants for its analyses of the important equity F&O trading activity. This can be done through a consultation paper that invites feedback from the public.

 

SEBI has also justified harsh equity derivatives measures, most of which were implemented between November 2024 and April 2025 under the earlier chairperson, on the grounds that the trading frenzy towards the end of expiry days was getting out of control and substantially raising manipulation risks. But there were no complaints of retail traders breaching rules and manipulating prices in equity futures and options.

 

Ironically, foreign investor Jane Street was alleged to have manipulated prices. If market integrity is at risk, SEBI must fix that, not dissuade a section of traders from participating. The other question SEBI's recent actions on futures and options trading raise is why it took so long to act on these issues, particularly since the rapid and persistent growth in equity F&O turnover has been showcased as an achievement both within the country and globally.  End

 

Edited by Rajeev Pai

 

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