Often touted as a lucrative opportunity for quick gains, options trading operates as a zero-sum game—profits for some come directly at the expense of others. This dynamic often leaves small retail investors, who are drawn in by the high-risk, high-reward proposition, at a disadvantage.
Recent data from the Securities and Exchange Board of India (Sebi) revealed the dire consequences for retail investors venturing into this arena. Sebi’s study revealed that 93% of retail traders in options markets incurred losses between FY22 and FY24, amounting to a staggering Rs 1.81 lakh crore in total losses. Individual traders lost an average of Rs 2 lakh.
Meanwhile, the dominance of global trading firms in the financial markets is built on their ability to deploy sophisticated algorithms that execute trades in fractions of a second, capturing incremental profits that add up to billions. While algorithmic traders at firms like Jane Street use sophisticated strategies to consistently win, the odds are heavily stacked against individual traders, especially those without access to such advanced tools.
The disparity in outcomes is stark. Jane Street recently disclosed in a U.S. court that a proprietary options trading strategy employed in India was among its most profitable, earning over $1 billion last year. However, retail investors—who make up a significant portion of the market—face steep losses. According to the Sebi study, only 7% of individual traders managed to turn a profit over the last three years, highlighting the dominance of institutional players.
Retail participation in derivatives trading has nearly doubled from 51 lakh in FY22 to 96 lakh in FY24, yet over 90% of retail traders continue to incur losses, as younger and low-income participants are hit hardest. Algorithmic firms like Jane Street dominate with high-speed strategies, capturing profits at the expense of smaller players.Also read | ICICI Securities picks 9 counters after DAC clears Rs 21,772-crore acquisition; BEL and HAL key beneficiaries
While platforms now offer retail traders access to algorithms, their impact remains limited. The result is a market where institutional players thrive, while success remains elusive for most retail participants, highlighting the persistent inequities in the F&O segment.
Sebi has introduced sweeping reforms to address this imbalance, including limiting weekly expiries to one index per exchange and increasing contract sizes for derivatives. These measures aim to curb speculation and volatility but may reduce access for smaller traders, raising the bar for market participation.
These developments paint a vivid picture of the inequities within the options trading ecosystem. While institutional firms leverage technology and capital to dominate, retail traders face mounting losses despite regulatory safeguards. SEBI’s interventions may signal a shift toward leveling the playing field, but they also reveal how far the system still has to go to create balance opportunity and risk in the financial markets.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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