KOCHI: Once designed as a sophisticated hedge against market volatility, India’s Futures & Options trade (F&O) segment has turned into a minefield for millions of unsuspecting retail traders lured by dreams of overnight riches.
Sad, what was supposed to offer protection has ended up draining household savings.
Meanwhile, options trading volumes on both BSE and NSE fell to nearly four-month lows in the second week of June, as heightened geopolitical tensions in the Middle East dampened trader sentiment. Market experts also pointed to a possible regulatory overhang from an ongoing probe into high-frequency trading, which may have further weighed on participation.
Despite repeated warnings from the market regulator and recent policy tweaks, speculative frenzy in the options trade space remains unchecked. A SEBI study revealed that 93 per cent of retail traders lost money in options trading between 2022 and 2024.
Even more concerning, 75 per cent of them continued to trade despite repeated losses, convinced that their next bet might pay off.
The losses are not just isolated incidents. Indian households are estimated to be losing Rs50,000 crore to Rs60,000 crore every year in F&O trading, according to fund managers, who warn that the fallout is becoming a macroeconomic concern.
“This is no longer a personal finance issue – it’s a national concern,” said a note by ICICI Direct. “Retail investors are getting burnt every day, particularly in the options market.”
Influence of social media
A major driver behind this retail rush is the explosion of online trading content. Social media platforms are flooded with videos and courses promising financial freedom through F&O trading. These platforms portray trading as a quick and easy path to wealth, drawing in scores of young and under-informed investors.
“Financial savings from Indian households are going into speculative bets, and the Indian youth is losing tons of money,” the ICICI note added.
In November 2024, SEBI introduced reforms to cool down the frenzy. These included increasing contract sizes, upfront collection of option premiums, and stronger disclosure requirements. However, the measures have had limited success. SEBI data shows the average retail trader loses about Rs50,000, with another 28 per cent lost to transaction costs.
“The moves by SEBI are not enough. Huge losses are still made by masses across the country with zero knowledge of what they are betting on,” said Sandip Raichuria, Executive Director and CEO, Broking and Distribution, Prabhudas Lilladher.
Raichuria and others have called for stronger investor protection, including entry restrictions based on net worth or income, to prevent individuals with limited resources from entering high-risk trades. “People with lower income have a greater propensity to gamble. There should be a net-worth criterion,” he said.
In January 2025, Mayank Bansal, president of a UAE-based hedge fund, made a presentation to SEBI’s top brass, highlighting manipulation in options trading. “And yet,” he later posted on social media, “we stand with brazen manipulation ongoing.”
The surge in retail participation coincides with an exponential growth in derivatives trading. According to the Reserve Bank of India’s Financial Stability Report, the turnover in index options (in premium terms) rose to Rs140 lakh crore in 2024 from just Rs4.5 lakh crore in 2018.
Turnover surges
Total turnover in the derivatives segment surged to Rs500 lakh crore in 2024, up from Rs210 lakh crore in 2018. During the same period, the share of individual investors in the F&O market jumped from 2 per cent to 41 per cent.
Meanwhile, institutional algo-trading firms such as Jane Street, Renaissance, and Citadel Securities continue to dominate trading volumes with strategies retail participants can neither match nor fully understand.
Unless stricter rules are introduced – such as minimum capital thresholds, mandatory training, and tighter oversight of financial influencers – the retail trading crisis could deepen, experts warn.
“The regulator’s efforts so far have not yielded the desired results,” said a fund manager. “What’s unfolding is a financial tragedy in slow motion.”
