Retail traders’ F&O losses stay high: How investors can limit the damage | Personal Finance
Securities and Exchange Board of India (Sebi) data show that 87.7 per cent of individual equity-derivatives traders incurred losses, compared with about 91 per cent in 2024-25 (FY25). Their aggregate net losses fell about 18 per cent to ₹91,685 crore from a revised ₹1.12 trillion in FY25. Despite the decline, losses remain high in absolute terms.
Why traders lose
Leverage is a major reason for these losses. “Derivatives can expose traders to many times their underlying capital, so relatively small market moves can translate into disproportionately large losses,” says Vinit Bolinjkar, head of research, Ventura.
Many retail traders trade too frequently. “They take positions based on short-term market moves rather than a defined strategy,” says Mehul Kothari, deputy vice president, Anand Rathi Share and Stock Brokers.
Retail activity is concentrated in short-duration contracts. About 59 per cent of index-options turnover in FY26 was in contracts expiring the same day, about 75 per cent within one day and about 97 per cent within one week. “Highly short-term trading makes outcomes very sensitive to timing and volatility,” says Bolinjkar.
Behavioural mistakes add to the damage. Fear of missing out (FOMO), overconfidence, and revenge trading worsen outcomes.
Individual traders incurred about ₹25,000 crore of transaction costs in FY26. “Transaction costs materially widen the difference between gross trading outcomes and realised net returns for high-turnover strategies,” says Bolinjkar.
Who is most vulnerable
Young, low-income traders and those with small portfolios are typically more vulnerable. “They tend to take higher exposure relative to their capital and trade more frequently,” says Kothari.
Investors outside the top 30 cities represented roughly two-thirds of individual derivatives traders and about 58 per cent of losses. However, location by itself does not explain poor outcomes. It may be a proxy for differences in experience, financial sophistication and portfolio size.
Why option buyers struggle
Option buyers face several disadvantages. Even when the market moves in their favour, the option may not gain enough to cover the premium paid. “An option buyer can lose value when the magnitude of the underlying move is insufficient,” says Bolinjkar.
Retail option buyers are pitted against sophisticated algorithmic traders. “They compete against proprietary and institutional desks with superior execution technology, quantitative pricing models, lower latency and portfolio-level hedging capabilities,” says Bolinjkar.
Who should do F&O trading
Futures and options (F&O) trading suits investors who have good market knowledge, sufficient risk capital, a tested strategy and strong discipline.
A trader must understand the mechanics of derivatives and risk control. “They should understand leverage, volatility and position sizing,” says Kothari. They should also understand margin requirements, liquidity and expiry dynamics, and maintain stop-loss frameworks.
The trader should be able to absorb a series of losses without changing the strategy. They should use only risk capital whose loss would not impair their financial objectives. Adequate capital also reduces the risk of excessive leverage or forced liquidation.
Traders with larger underlying portfolios experience materially lower loss ratios. They should have meaningful experience across different market conditions.
Control risks
Traders should decide the maximum loss they can accept before entering a trade, and never exceed that amount. “They should avoid excessive leverage and concentrated exposure,” says Shilpa Rout, senior analyst – derivatives, PL Capital. Every trade should have a stop-loss.
“Position sizes should be kept small. Avoid risking more than 1-2 per cent of total capital on a single trade,” says Harsh Vira, chief financial planner and founder, FinPro Wealth. He adds that leverage should also be kept low.
“Overall exposure should also remain limited so that a spate of bad trades does not damage long-term finances,” says Vira.
Investors should never risk money needed for essential expenses or financial goals.
They should also avoid averaging down losing positions as this can increase losses. Excessive trading to try and recover losses immediately should be avoided.
“Investors should avoid blindly following social-media tips or ‘sure-shot’ calls,” says Rout.
Know when to stop
Repeated losses are a clear warning sign that an investor should consider stopping F&O trading. “Dipping into savings, borrowing to meet losses or margins, and feeling compelled to trade to recover losses are clear warning signs,” says Rout.
At that point, investors should step away from derivatives and move towards simpler, unleveraged products that better match their risk tolerance and financial goals, such as mutual funds or diversified equity investing.
The writer is a Mumbai-based independent journalist
