More young people are trading in derivatives, and making losses, SEBI study reveals

Younger, lower-income traders dominate India's derivatives market but bear the brunt of losses

India's equity derivatives market has undergone a significant demographic shift, with a new study by the Securities and Exchange Board of India (SEBI) revealing that traders under 30 now constitute 43% of individual participants, up from 31% four years earlier. However, this younger cohort also recorded a higher incidence of losses, with around 89% of traders below 30 being loss-makers in FY26, compared to 81% of participants above 60, as reported by multiple outlets including Business Standard, The Hindu Business Line, and The Times of India.

The study, titled 'Trading Behaviour of Individual Traders in the Equity Derivatives Segment', covers FY25 and FY26 and is the fourth in the regulator's running series on retail outcomes in futures and options, according to The New Indian Express. It found that the overall individual trader base contracted 18%, from 1.06 crore in FY25 to 87.5 lakh in FY26, a figure reported by both The Hindu Business Line and The Times of India.

A market increasingly drawn from smaller towns and lower-income groups

The changing age profile is part of a wider transformation in the retail derivatives market, which has increasingly drawn investors outside India's largest cities and from relatively lower-income groups. About three-fourths of individual derivatives traders belonged to the annual income category of below ₹5 lakh, and this group accounted for 43% of turnover but 53% of aggregate losses, the regulator said. Around 88% of traders in this income category incurred losses, compared with 81% of investors with annual income above ₹1 crore.

Investors from smaller towns (B30) accounted for about two-thirds of individual traders and nearly half of derivatives turnover in FY26. The study noted that B30 investors account for only about one-fourth of individual mutual fund assets, pointing to a markedly higher derivatives risk appetite relative to their broader investment behaviour.

Small equity portfolios, large derivatives turnover

The study also examined the relationship between derivatives trading and the size of investors' underlying equity portfolios. In FY25-26, around 95 lakh, or 78%, of individual derivatives traders had equity portfolios below ₹1 lakh. This group accounted for 51% of turnover but as much as 70% of aggregate losses. The study also found that traders with equity portfolios below ₹1 lakh but derivatives turnover above ₹1 crore represented only 13% of traders, though they accounted for 52% of aggregate losses.

Around 43 lakh traders, or 35% of individual derivatives participants, had no underlying equity portfolio at the end of FY26, meaning they were trading in derivatives without holding any cash equities, as reported by The Times of India and The Hindu Business Line.

Losses persist despite regulatory tightening

The study's findings come amid a broader pullback in participation following regulatory measures. SEBI phased in stricter risk-management measures between November 2024 and April 2025, including limiting weekly derivatives contracts to one index per exchange, raising minimum contract sizes, and imposing additional Extreme Loss Margin (ELM) requirements on short option positions on expiry days. Separately, the Centre raised the Securities Transaction Tax (STT) on equity derivatives, effective 1 October 2024, as detailed by Livemint.

These measures appear to have pushed some traders away. The number of new traders entering equity derivatives peaked at 4.31 million in FY24 and declined to 3.43 million in FY25 and 2.08 million in FY26, a decline of about 39% in FY26, according to the SEBI report. Exits rose from 420,000 in FY22 to 4.57 million in FY26, more than tenfold, and the exit rate climbed from 16% to 43% over the same period. FY26 saw a negative net addition to the trader base, the first such reversal in the period studied.

Despite the reduced participation, losses remain substantial. Individual traders lost ₹91,685 crore on a net basis in FY26, down from about ₹1.12 lakh crore the year before, but the improvement is arithmetic rather than skill, as a smaller loss was shared among fewer people, The New Indian Express reported. The average loss per trader actually rose slightly, to about ₹1.17 lakh, and around 92% of the aggregate loss came from options.

The cost of trading and who benefits

The study also highlighted the significant role of transaction costs. ₹25,000 crore of what individuals paid out in FY26 was not market losses at all but transaction costs—brokerage, exchange charges, and securities transaction tax—which stayed broadly flat even as premium turnover moderated, because STT rates rose from October 1, 2024. Across FY22–FY26, individuals have handed over roughly ₹1 lakh crore in such costs.

On the other side of those trades, proprietary desks booked about ₹44,000 crore in gross trading profit and foreign portfolio investors ₹14,000 crore, with 99% of both accruing to algorithmic entities, The New Indian Express reported.

Trading behaviour: options buyers dominate

The study's sample revealed that 93% of traders bought options and never sold them first on any trading day; another 4% sold options on fewer than half their trading days, meaning 97% were essentially options buyers. Barely 2% were predominantly options sellers, and under 1% traded futures mainly. The loss rates were starkly different: 90% of 'only options buyers' made a loss in FY26, against 44% of the predominantly options-selling group (down from 51% in FY25). However, options sellers as a category still lost ₹543 crore on a net basis in FY26, worse than ₹428 crore in FY25.

Experience doesn't improve outcomes

One of the most sobering findings, as reported by The New Indian Express, is that experience does not improve outcomes. Among individual traders who had been in the equity derivatives segment for four consecutive years, 96.5% ended up with a net loss; among those with a single year behind them, the figure was 91%. Only 57% of traders active in FY25 traded again in FY26, against a long-run cohort average of 65%.

The study also looked at the aftermath for loss-making traders. Among roughly 1.10 crore individuals who lost money in derivatives during FY22–FY24, 77% held an equity portfolio at end of FY26 worth less than a quarter of those cumulative losses; only 18% held a portfolio larger than what they had lost. Traders who had lost more than ₹1 crore in derivatives had a median equity portfolio of ₹138 at the end of FY26; those who had made more than ₹1 crore had a median portfolio of about ₹1.08 crore.

SEBI's caution on causation

SEBI cautioned that relationships between trading outcomes and factors such as age, income, location, activity, and portfolio size should not be interpreted as proof of causation, a point noted by Business Standard, The Hindu Business Line, and The Times of India. The regulator has been flagging risks and losses in retail F&O trading for years, and other studies have shown India to be a global outlier on retail F&O participation, as Livemint noted.

The study's findings paint a picture of a market where younger, lower-income, and smaller-town investors are increasingly active, but where the odds are heavily stacked against them, with losses concentrated among those with the smallest equity portfolios and the least financial cushion.