Why retail investors are left with no Option

Over the past six years, India has swiftly emerged as the world’s largest equity derivatives market, with average daily turnover soaring from ₹92,724 crore in FY20 to ₹2.63 lakh crore in FY25, reflecting a 23% compound annual growth rate (CAGR). This rapid expansion has been driven largely by a surge in retail participation, especially in equity options, as individual investors chase quick returns.

However, this rapid growth has come at a massive cost, with retail investors incurring heavy losses, both in scale and frequency. According to a recent study by the Securities and Exchange Board of India (Sebi), individual traders collectively lost more than ₹2.87 lakh crore through futures and options (F&O) trading over the past four years. Alarmingly, the net losses of individual traders widened to ₹1.05 lakh crore in FY24 alone, flagging the growing financial risk borne by retail participants in the derivatives segment.

The findings suggest that many participants lack the necessary understanding of complex derivative products, exposing them to substantial financial risk. Interestingly, the study's findings coincide with the recent ban on the U.S.-based Jane Street (JS) Group from the Indian markets for alleged manipulation in the derivatives market, amid the disgorgement ₹4,843.6 crore in alleged unlawful gains. The American investment group entities operating in India—JSI Investments, JSI2 Investments, Jane Street Singapore, and Jane Street Asia Trading—allegedly manipulated Bank Nifty, the 12-stock banking index, and benefitted from unlawful gains. These companies have also been barred from accessing the securities market and buying, selling, or otherwise dealing in securities, according to the Sebi order issued on July 3.

“JS Group first aggressively bought significant quantities of Bank Nifty underlying constituent stocks and futures, temporarily pushing up or lending considerable support to the Bank Nifty index. In the second patch of the day, as has again been demonstrated by data and analysis, JS Group was seen to practically and effectively reverse all of this buying activity from the first patch, by aggressively selling large quantities of Bank Nifty underlying constituent stocks and futures,” Sebi’s 105-page interim order stated.

Retail F&O investors lose over ₹1 lakh crore in FY25

The Sebi report revealed that the net losses of individual traders surged by 41% year-on-year (YoY), climbing to ₹1.06 lakh crore in FY25, up from ₹74,812 crore in FY24. Retail losses had previously stood at ₹40,824 crore in FY22 and ₹65,747 crore in FY23, highlighting a steady rise in retail exposure and financial distress.

The average loss per retail trader also increased sharply to ₹1.1 lakh in FY25, compared to ₹86,728 in FY24. In earlier years, the average losses were ₹1.12 lakh in FY23 and ₹95,517 in FY22.

Sebi’s findings also paint a grim picture for retail participants: a staggering 9 out of 10 individual traders in the equity derivatives segment incurred losses—a trend that has persisted over the past four consecutive years.

Yet, participation continues to rise. The number of unique individual F&O traders grew 11% YoY to approximately 96 lakh in FY25, from 86.3 lakh in FY24. This figure had already jumped from 42.7 lakh in FY22 to 58.4 lakh in FY23, despite 90% of them ending in the red for the four consecutive years.

Retail participation drops after F&O tightening

A breakdown of half-yearly trends in participation and profit and loss outcome of individual traders for FY25 reveals a clear shift in retail investor behaviour in the equity derivatives market following Sebi’s regulatory tightening aimed at curbing excessive speculation. According to the Sebi study, between December 2024 and May 2025, the average daily turnover by individual investors in equity derivatives dropped by 11% year-on-year, falling to ₹56,042 crore from ₹62,722 crore in the corresponding six-month period of the previous fiscal (Dec 2023–May 2024).

In a similar trend, the number of unique individual traders in the equity derivatives segment (across the NSE and the BSE) declined by 20%, down to 67.74 lakh during the December 2023–May 2024 period, from 84.25 lakh in the corresponding period of the previous fiscal.

This period coincides with the rollout of Sebi’s derivatives-related measures, which began on November 20, 2024. The data clearly indicates that the regulator’s efforts to tighten norms and discourage high-risk retail speculation have begun to impact both participation levels and trading volumes in the derivatives segment.

A quarterly analysis of FY25 data shows losses peaked in Q3FY25 and slightly eased in Q4FY25, possibly because of the initial impact of Sebi’s recent reforms. The consolidated losses of individual traders in equity derivatives stood at ₹21,255 crore in Q1FY25, which rose to ₹25,942 crore in Q2, and further to ₹33,661 crore in Q3, while it declined to ₹24,745 crore in Q4 of the last fiscal.

Meanwhile, the number of unique individual traders in the equity derivatives declined significantly, from around 61.4 lakh in Q1FY25 to around 42.7 lakh in Q4FY25. This period coincides with the rollout of Sebi’s derivatives-related measures, which began on November 20, 2024.

The data further revealed that equity derivatives turnover dipped slightly, with index options falling 9% in premium terms and 29% in notional terms year-on-year. However, compared to two years ago, turnover is still up by 14% in premium and 42% in notional terms, showing that the market remains robust despite tightening norms.

“The Sebi circular discontinuing weekly index option contracts has had a transformative impact on the options trading landscape,” said Pranay Aggarwal, Director and CEO of Stoxkart- a discount brokerage firm that is a part of financial services firm SMC Global.

He said that between CY20 and CY24, index options volumes surged, fuelled by low premiums and weekly expiries. “However, post the regulatory change in November 2024, we’ve observed a sharp 72% drop in index option volumes and a 71% decline in total derivatives activity from December 2024 to June 2025. This shift underlines how Sebi’s move has effectively curbed short-term speculative behaviour, particularly among retail traders, bringing the focus back to responsible trading practices. The impact is clear and measurable.”

Achin Goel, Fund Manager at Bonanza Portfolio, said the regulatory changes have led to quality improvement in retail behaviour, not a decline in participation. “Stricter regulations and higher margin requirements in stock F&O led to a surge in index option strategies, reducing reliance on speculative stock options.”

The recent regulatory measures—meant to enhance market stability and investor protection—are beginning to impact the landscape, particularly in equity index derivatives. In a bid to contain speculative spikes on expiry days and systemic risks, Sebi has introduced a series of reforms, starting with the rationalisation of weekly and monthly index derivatives in November 2024. The regulator also increased contract sizes, upfront collection of option premiums, and intraday position limit monitoring.