Last week, global trading powerhouse Jane Street deposited more than ₹4,800 crore in an escrow account following a regulatory order from the Securities and Exchange Board of India (Sebi). The regulator had earlier barred Jane Street from trading in Indian markets after it was accused of manipulating prices in the Bank Nifty index. It was alleged that Jane Street bought banking stocks to push up the index and simultaneously shorted Bank Nifty options, a strategy Sebi termed “well-planned and sinister.” 

The fallout was swift and severe. F&O volumes on the Indian exchanges dropped nearly 20%, and investor wealth worth more than ₹1 lakh crore was wiped out in a few days. Sebi’s crackdown, paired with the Jane Street case, has once again exposed the high risks and deep flaws in India’s booming derivatives market, especially for retail investors who are increasingly lured by the promise of quick profits. 

To decode what this saga means for Indian investors, Fortune India spoke to Vivek Banka, founder of wealth-tech platform GoalTeller. Banka sheds light on how options trading often gets mistaken for a shortcut to wealth, why behavioural traps lead most traders to losses, and why a disciplined, long-term strategy is still the best path to financial freedom. 

Edited excerpts: 

What does the Jane Street case reveal about the risks involved in options trading, even for seasoned players? What are the lessons for retail investors?

The Jane Street test is a much-needed mirror for Indian investors about the risks and the sharks present in markets that are waiting to eat up their hard-earned savings. Whether seasoned or not, the fact of the matter is that a combination of low liquidity, leverage, and lack of large capital makes even the most seasoned traders susceptible to such moves. They should realise that at the end of the day, the markets, in very short periods, behave like a casino, and in a casino, the house always wins.

Why do retail investors often misunderstand F&O trading? How does it differ from long-term equity investing?

F&O trading, unlike equities, is a no-sum game, and there is value being created. In this segment, the short nature of contracts makes them highly susceptible to manipulation by larger institutions, and the inherent leverage only exacerbates their fragility, making them vulnerable to any market movements. Long-term investing, on the other hand, is a game that traders cannot manipulate since long-term stock/equity returns mirror earnings growth, which helps individuals participate in economic growth.

How can retail investors assess whether F&O trading fits into their financial plan or risk appetite?

F&O as a plan only fits in as a hedge in case of some investors. In all other cases, it's a subject best avoided, as shown by Sebi's data, where more than 90% of individuals lose money in derivatives. The absence of Jane Street will not change this equation. 

What are some behavioural biases that impact F&O traders? How can retail investors manage them better?

Three of the biggest biases that ail F&O traders are: one, “recency" bias, which essentially means that individuals rely too much on recent data to take investment decisions and ignore long-term statistics. Two, overconfidence bias, where some gains in the past make them complacent and believe that they are the best in the business and can do no wrong. Last is the sunk cost fallacy. This is when investors, when they are making losses, continue to hold their positions or, in some cases, double up to recover the lost money. Retail investors can manage this by: a) ensuring they invest only limited amounts that help them stay afloat even in bad times; b) being well-capitalised to take care of any margin calls; and c) having strict stop losses and targets in place even before making a trade

Can goal-based investing and proper asset allocation offer a more sustainable alternative to short-term derivatives trading for wealth creation?

Goal-based and long-term investing is always a better alternative than derivative trading, as they allow strong wealth generation where money can double every five-odd years if managed well, unlike derivatives, which, due to the reasons mentioned above, are only a loss-making proposition like a casino where the house always wins.