Nearly 90% retail F&O traders lost money in FY26. The big question: Why do they keep betting?

Nearly nine in 10 retail traders lost money in India’s futures and options (F&O) market in FY26. Yet, the lure of quick gains remains difficult to shake off. Despite steep losses and tighter regulations, traders continue to return to derivatives, drawn by the possibility of outsized returns, easy access and the psychological pull of recovering losses.

According to Sebi’s latest study, 87.7% of individual traders lost money in FY26, with aggregate net losses of around ₹91,685 crore. The average loss per loss-making trader rose marginally to about ₹1.17 lakh. Individual traders have cumulatively lost around ₹3.85 lakh crore in equity derivatives over FY22-FY26.

The number of active individual traders, meanwhile, fell 20% to 78.6 lakh in FY26 from 98.1 lakh, while new entrants declined around 40%. Yet the proportion of traders losing money fell only marginally from 90.9% in FY25 to 87.7% in FY26.

“F&O trading combines three things that are very hard for the human brain to resist which are small entry ticket, a chance of a big payoff, and instant feedback on your phone,” said Balaji Rao Mudili, Research Analyst at Bonanza.

Hariselvan Radhakrishnan, Founder of HST Wealth, a Sebi-registered Research Analyst firm, said derivatives continue to attract retail investors because they offer the possibility of large returns with relatively small capital and within a short period.

“Easy access through mobile trading platforms and social media has also encouraged participation,” he said.

But the attraction is not purely about the product. Behavioural factors such as overconfidence and loss chasing can keep investors coming back, Radhakrishnan said. Traders may also focus disproportionately on successful trades or traders while overlooking the broader data showing that a large majority of retail participants lose money.

Who made the money?

While individual traders continued to post heavy losses, proprietary trading firms and foreign portfolio investors (FPIs), largely powered by algorithmic trading, accounted for the bulk of profits in the F&O segment, according to Sebi data.

Proprietary traders recorded gross trading profits of around ₹44,000 crore in FY26, followed by FPIs at ₹14,000 crore, corporates at ₹8,000 crore, and mutual funds and partnership firms/LLPs at around ₹3,000 crore each.

Sebi noted that 99% of the profits made by FPIs and proprietary traders came from “algo entities”. Profitability among proprietary traders was also highly concentrated, with the top 10 entities accounting for around 75% of the category’s gross profits.

Retail traders, meanwhile, largely chose the options-buying route. Around 97% mainly bought options, while only around 2% mainly sold them. Option sellers were the only group with positive median returns, Mudili said.

He called this behavior the “lottery ticket effect”. Traders pay a relatively small premium for the possibility of multiplying their money several times in a day if the market moves sharply in their favour. If the trade goes wrong, the loss can initially feel small because it is limited to the premium paid.

Why Sebi’s tighter rules haven’t solved the problem

Sebi has introduced several measures since November 2024 to curb excessive speculation and strengthen risk management in derivatives. These include reducing weekly index expiries, increasing contract sizes, requiring upfront collection of option premiums, removing calendar-spread margin benefits on expiry days and monitoring position limits during the day.

In May 2025, the regulator further streamlined expiry days across exchanges and introduced risk-based metrics for position limits.

The measures have reduced participation, but the behaviour of those who remain has proved harder to change. The loss-making share declined only marginally to 87.7% in FY26 from 90.9% a year earlier, while the average loss per loss-making trader rose around 2% to ₹1.17 lakh from ₹1.13 lakh.

In Budget 2026, the Securities Transaction Tax (STT) on futures was raised from 0.02% to 0.05%, while STT on option premiums increased from 0.1% to 0.15%, effective April 1, 2026.

“Sebi’s rules have made it harder and costlier to trade, and fewer people are doing it, but they have not changed how the people who stay actually behave,” Mudili said.

Ponmudi R, CEO of Enrich Money, said the regulatory measures are important, but restrictions alone cannot eliminate losses because derivatives remain legitimate risk-management and price-discovery instruments.

“The core issue is not access to F&O; it is access without adequate understanding of risk,” Ponmudi said.

He said the next phase should focus equally on suitability, education and risk behaviour rather than simply restricting access.

Why do retail investors keep coming back?

One of the biggest attractions of F&O is the possibility of making large returns with relatively small capital.

“Leverage is perhaps the biggest attraction,” Ponmudi said. It allows traders to take exposure to a much larger market position without deploying an equivalent amount of cash. While this magnifies gains when trades work, losses can accumulate just as quickly.

Technology has also fundamentally changed access to derivatives. Traders can open accounts, study option chains and execute trades within seconds on smartphones. Low transaction costs, simple interfaces, real-time charts and social-media-driven trading ideas have further lowered the psychological barrier to participation, Ponmudi said.

There is also a behavioural element. Traders often remember winning trades more strongly than their accumulated small losses. A few successful trades can create overconfidence and the belief that the next trade can recover previous losses, creating a cycle of frequent trading, particularly in short-duration and expiry-day options.

Mudili points to a similar pattern of overconfidence and loss aversion. Traders may hold losing positions for longer or increase their bets in an attempt to recover money already lost.

Expiry-day trading can further intensify the behaviour. Around 59% of index options turnover came from contracts expiring on the same day, while 97% came from contracts expiring within a week.

Same-day expiry contracts are among the cheapest and most explosive instruments, Mudili said, making them particularly attractive to traders looking for quick gains.

The problem also extends beyond first-time traders. Among those who lost money for two consecutive years and continued trading, around 90% lost again the following year, Mudili said.

He suggested going a step further through suitability or eligibility tests based on income, net worth or an investor’s understanding of derivatives before allowing options trading. Brokers could also review investors’ financial information and introduce mechanisms to limit losses relative to income or net worth.

For repeat loss-makers, trading platforms could introduce cooling-off periods, require reconfirmation before the next trade or prominently display cumulative losses. Showing an investor’s P&L, including transaction costs, could also make the impact of trading more visible.

The need for such interventions is particularly relevant among younger investors. Traders below 30 accounted for 42.9% of participants, the highest among age groups, while 91.9% of participants below 30 were loss-makers in FY26, he said.

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