Out of the45.24lakh individual traders in futures and options (F&O) in the financial year 2021-22, only 11% made profit, shows a report by Securitiesand Exchange Board of India (Sebi). Out of the total participants, the number of individual active traders stood at 39.76 lakh (88%). Sebi has classified active traders as those who traded in the equity F&O segment more than five times during the year.
The sample size of 45.24 lakh traders is taken from the top 10 brokers that account for around 67% of the overall individual client turnover in the equity F&O segment during FY22.
The total number of unique individual traders has increased by over 500% in FY22 from 7.1 lakh in FY19 as individual investors flocked to the F&O segment during Covid-19. Even as the interest in derivatives market has zoomed in the past three years, the percentage of profit making traders has gone down from 13% in FY19 to 10% in FY22.
The report analysed P&L of individual investors in the equity F&O segment for the period of FY19 and FY22. “The periods of study have been suitably selected keeping in view the influx of individual investors in the last three years, so as to comparatively analyse the trends before and after Covid-19 outbreak,” the Sebi report said.
The average loss made by the 89% loss makers stood at Rs. 1.1 lakh during FY22, whereas the average profit for traders with their P&L in green was at ₹1.5 lakh. The report shows that the top 1% and top 5% active profit makers accounted for nearly 51% and 75% of the total net profit earned by all active profit makers, respectively.
Over and above the net trading losses, loss makers spent an additional 28% of net trading losses as transaction costs. Aggregate transaction costs include brokerage, clearing fees, exchange fees, SEBI turnover fees, STT, GST etc. and higher transaction costs are indicative of frequent trading. For this reason, the percentage of transaction costs for non-active traders was much lower at 8%.
The striking growth in the total number of participants in the F&O segment since 2019 was largely fuelled by young traders aged 20-30 years. This segment constituted 36% of the total traders in FY22, up from 11% in FY19. Individual traders in the age group of 30-40 years had the highest share in participation (39%) in FY2022, but saw a decline from 43% in FY19.
First Published:
25 Jan 2023, 08:17 PM IST
FAQs
They're basically agreements to buy or sell a stock at a certain price by a certain date. Why are they risky? Most F&O bets (around 90%) end in losses! Unlike buying a stock and holding it, F&O contracts have a deadline.
How do you calculate profit in F&O trading? ›
Futures Turnover Calculation
- Trade 1: Profit = (15,200 – 15,000) * 100 * Lot Size = ₹2,00,000.
- Trade 2: Loss = (30,000 – 29,800) * 50 * Lot Size = ₹1,00,000.
- Trade 3: Profit = (15,300 – 15,150) * 80 * Lot Size = ₹1,20,000.
Futures and options trading often involve high leverage, meaning you can control a large position with a relatively small amount of money. While this can amplify profits, it also magnifies losses. A small adverse price movement can wipe out your entire investment.
Why do 80% of traders lose money? ›
One of the primary reasons traders lose money is the absence of a clear trading strategy. According to research by Bloomberg, over 80% of day traders quit within the first two years, often due to insufficient strategies. One of the primary reasons traders lose money is the absence of a clear trading strategy.
How many option traders are successful? ›
Only 10% of traders make money, and the remaining 90% end up in a loss. There is a 25% chance of losing your investment and a 75% chance of profit.
What percentage of options traders lose money? ›
The study, which analysed trading accounts from major brokerage firms, found that nearly 85% of young traders incurred losses within their first year of trading options.
Is it mandatory to show F&O loss in ITR? ›
Your Gains (Losses) from F&O Trades Must be Reported in ITR
If you fail to disclose, you may receive a notice from the tax department as they now have access to all the stock market transactions carried out by taxpayers.
Is profit from F&O taxable? ›
Do I have to pay tax on my F&O profits ahead of time? If you have F&O income, it is considered non-speculative business income and is taxed at the standard slab rates. If you think you will make more than Rs 10,000 this financial year, you will need to pay advance tax in four equal payments, each due on the due date.
Is tax audit compulsory for F&O loss? ›
Tax Audit:
If the F&O trade turnover exceeds the allowed limit, a tax audit may be necessary under section 44AB of the Income Tax Act. In such circ*mstances, you may be required to file the audit report alongside your income tax return.
Why do 90% of traders lose money? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
There are several reasons why investors may suffer losses when trading futures and options: Time decay (Theta): Options contracts have a limited lifespan, and as they approach expiration, their time value erodes rapidly.
How do you never lose in option trading? ›
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
Why 95% of traders fail? ›
Insufficient Education and Knowledge:
Many traders plunge into the market without a solid grasp of its nuances. This lack of understanding leads to impulsive decision-making and substantial financial losses. Comprehensive education is the bedrock upon which successful trading stands.
Do beginner traders lose money? ›
Sometimes the market is easier to trade and you make money right away. But usually, there is a learning curve which means losing some of your capital at the start. After that learning curve, you still need enough capital so that the risk on any single trade is small.
Is trading in F&O profitable? ›
Is F&O trading profitable? It is possible to be profitable in F&O trading. One reason retail investors' interest in Future and options trading is that it is a margin base trading, that is, a higher value position can be taken by just paying a portion of the full amount.
Is it good to trade in F&O? ›
It is fine as long as you are aware that the impact of leverage through margins works both ways; in case of profits and in case of losses. 2. Buying options means limited risk, but you rarely make money. Many small F&O traders prefer to buy options because your risk is limited to the premium paid.
What is the probability of success in options trading? ›
Options spread probabilities
So, using the deltas as probabilities, there's about a 78% chance to keep the entire credit, minus transaction costs, and about an 11% chance the loss will be the maximum amount.
What is the success rate of futures traders? ›
Tradeciety provides clearer and more time-specific futures trading stats–namely, that 40% of all futures day traders quit in 4 months, 80% quit within a year, and that only 7% are able to last 5 years or more. Bear in mind that among the 20% who last over a year, not all of them are profitable, just persistent.
