SEBI’s FY25 study (Dec 2024–May 2025) on equity F&O trading

The Securities and Exchange Board of India (SEBI) released a study analyzing the profit and loss patterns of individual traders in the equity Futures and Options (F&O) segment for the financial year 2024-25 (FY25), with a focus on the period from December 2024 to May 2025. Below is a summary of the key findings and insights based on available information:

Key Findings of SEBI’s FY25 F&O Trading Study:

High Loss Rates Among Individual Traders:

• Approximately 91% of individual traders in the equity derivatives segment incurred net losses in FY25, consistent with trends observed in FY24 (91.1%) and FY22 (89%).
• The aggregate net loss for individual traders reached ₹1.05 lakh crore in FY25, a 41% increase from ₹74,812 crore in FY24, after accounting for transaction costs.

Decline in Trading Activity:

• The number of unique individual traders in the F&O segment decreased from 61.4 lakh in Q1 FY25 to 42.7 lakh in Q4 FY25, a 20% decline year-on-year, partly attributed to SEBI’s stricter regulations to curb speculative trading.
• Index options turnover dropped by 9% in premium terms and 29% in notional terms year-on-year, though it was up 14% in premium terms and 42% in notional terms compared to two years prior.
• Individual traders’ turnover in premium terms in the equity derivatives segment fell by 11% year-on-year.

Profit Disparity:

• While individual traders faced significant losses, proprietary traders and foreign portfolio investors (FPIs) earned substantial profits in FY24, with gross profits of ₹33,000 crore and ₹28,000 crore, respectively, largely driven by algorithmic trading (97% of FPI profits and 96% of proprietary trader profits).
• Only 1% of individual traders earned profits exceeding ₹1 lakh after transaction costs over FY22–FY24, with the top 3.5% of loss-makers (around 4 lakh traders) facing an average loss of ₹28 lakh each.

Trader Demographics and Behavior:

• Young traders (under 30 years) made up 43% of the F&O trader base in FY24, up from 31% in FY23, with 93% of them incurring losses, highlighting a lack of risk management skills.
• Low-income traders (annual income < ₹5 lakh) accounted for over 75% of F&O traders in FY24, with 92.2% of them losing money.
• Traders from beyond the top 30 cities (B30) comprised 72% of the F&O trader base, higher than the 62% for mutual fund investors.
• Despite losses, 75% of loss-making traders continued trading in FY24, indicating a persistent or speculative mindset.

Options vs. Futures:

• Losses were higher in options trading (91.5% of traders lost money in FY24) compared to futures trading (60% of traders lost money), underscoring the higher risk of options.

Transaction Costs:

• Individual traders spent approximately ₹50,000 crore on transaction costs over FY22–FY24, with 51% attributed to brokerage fees and 20% to exchange fees.
• In FY24, the average transaction cost per trader was ₹26,000.

Regulatory Measures and Impact:

• SEBI introduced stricter norms effective between November 2024 and April 2025, including:
  • Limiting weekly expiries to one per benchmark index per exchange,
  • reducing the number of weekly contracts from 18 to 6 per month.
  • Increasing the minimum contract size to ₹15 lakh from ₹5–10 lakh to deter small retail traders.
  • Raising the Securities Transaction Tax (STT) on options to 0.1% from 0.0625% and adjusting transaction charges.
  • Enhancing intraday monitoring of position limits and removing calendar spread benefits on expiry days.
• These measures led to a 20% decline in overall unique F&O traders and a reduction in speculative trading, particularly on expiry days.
• SEBI’s actions aim to enhance market stability, protect retail investors, and reduce speculative activity, though they may reduce market liquidity and impact exchange and broker revenues by 20–30%.

New Traders:

• In FY24, 42 lakh traders were classified as “new traders” (first-time traders in the equity F&O segment in three years), with 92.1% of them incurring losses, averaging ₹46,000 per person.

SEBI’s Observations and Recommendations:

• Speculative Nature: The study highlights the highly speculative nature of F&O trading, particularly in index options, with retail participation driven by market awareness and financial influencers.
• Investor Education: SEBI emphasizes the need for enhanced financial literacy to equip traders with risk management knowledge and tools.
• Regulatory Oversight: SEBI continues to monitor index options turnover and plans further measures to ensure investor protection and market stability, such as improved risk monitoring metrics and oversight to prevent manipulation.

Implications for Retail Investors:

• The high loss rates and increased regulatory barriers (e.g., larger contract sizes) may deter small retail traders, potentially pushing them toward cash markets or other investment avenues.
• Retail investors are advised to:
  • Educate themselves on market risks and develop sound trading strategies.
  • Implement strict risk management practices, such as stop-loss orders and portfolio diversification.
  • Consult qualified financial advisors before engaging in F&O trading.

Limitations of the Study:

• The FY25 study primarily covers December 2024 to May 2025 and focuses on the top 13 stock brokers, representing 96 lakh unique traders out of an estimated 107 lakh total traders in the market.
• Detailed data for the full FY25 period may not be comprehensive, as the study emphasizes a specific six-month window. For the complete report, refer to SEBI’s official website (www.sebi.gov.in) (www.sebi.gov.in).