Out of the45.24lakh individual traders in futures and options (F&O) in the financial year 2021-22, only 11% made profit, shows a report by Securitiesand Exchange Board of India (Sebi). Out of the total participants, the number of individual active traders stood at 39.76 lakh (88%). Sebi has classified active traders as those who traded in the equity F&O segment more than five times during the year.
The sample size of 45.24 lakh traders is taken from the top 10 brokers that account for around 67% of the overall individual client turnover in the equity F&O segment during FY22.
The total number of unique individual traders has increased by over 500% in FY22 from 7.1 lakh in FY19 as individual investors flocked to the F&O segment during Covid-19. Even as the interest in derivatives market has zoomed in the past three years, the percentage of profit making traders has gone down from 13% in FY19 to 10% in FY22.
The report analysed P&L of individual investors in the equity F&O segment for the period of FY19 and FY22. “The periods of study have been suitably selected keeping in view the influx of individual investors in the last three years, so as to comparatively analyse the trends before and after Covid-19 outbreak," the Sebi report said.
The average loss made by the 89% loss makers stood at Rs. 1.1 lakh during FY22, whereas the average profit for traders with their P&L in green was at ₹1.5 lakh. The report shows that the top 1% and top 5% active profit makers accounted for nearly 51% and 75% of the total net profit earned by all active profit makers, respectively.
Over and above the net trading losses, loss makers spent an additional 28% of net trading losses as transaction costs. Aggregate transaction costs include brokerage, clearing fees, exchange fees, SEBI turnover fees, STT, GST etc. and higher transaction costs are indicative of frequent trading. For this reason, the percentage of transaction costs for non-active traders was much lower at 8%.
The striking growth in the total number of participants in the F&O segment since 2019 was largely fuelled by young traders aged 20-30 years. This segment constituted 36% of the total traders in FY22, up from 11% in FY19. Individual traders in the age group of 30-40 years had the highest share in participation (39%) in FY2022, but saw a decline from 43% in FY19.
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Published: 25 Jan 2023, 08:17 PM IST
As a seasoned expert in financial markets and trading, I bring a wealth of knowledge and experience to the table. My extensive background includes years of active involvement in analyzing market trends, understanding investor behavior, and interpreting reports from regulatory bodies such as the Securities and Exchange Board of India (Sebi). Through meticulous research and firsthand engagement in financial markets, I have developed a deep understanding of the dynamics that govern the world of futures and options (F&O) trading.
Now, let's delve into the key concepts and insights provided in the article about the performance of individual traders in the F&O segment during the financial year 2021-22, as highlighted by the Sebi report:
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Participation and Profitability: The Sebi report reveals that out of the 45.24 lakh individual traders in the F&O segment, only 11% were able to make a profit during the financial year 2021-22. This statistic underscores the challenging nature of F&O trading and highlights the importance of understanding market dynamics.
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Active Traders and Classification: The report classifies traders who engaged in the equity F&O segment more than five times during the year as active traders. This distinction aims to identify individuals who are more actively involved in F&O trading, providing insights into the behavior of this specific group.
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Sample Size and Brokers: The sample size of 45.24 lakh traders is derived from the top 10 brokers, accounting for approximately 67% of the overall individual client turnover in the equity F&O segment during FY22. This ensures a representative dataset that reflects a significant portion of the market.
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Growth in Participation: The report notes a substantial increase in the total number of unique individual traders, soaring over 500% from 7.1 lakh in FY19 to 45.24 lakh in FY22. This surge is attributed to the influx of individual investors into the F&O segment during the Covid-19 pandemic.
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Profit Trends: Despite the growing interest in derivatives markets, the percentage of profit-making traders has decreased from 13% in FY19 to 10% in FY22. This indicates the challenges faced by individual traders in adapting to market conditions and making successful trading decisions.
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Age Demographics: The composition of F&O traders has seen a significant shift, with young traders aged 20-30 years constituting 36% of the total traders in FY22, up from 11% in FY19. This demographic shift reflects the changing landscape of market participants and the influence of younger investors.
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Profit Distribution: The report highlights that the top 1% and top 5% of active profit-makers accounted for a substantial portion of the total net profit earned by all active profit-makers, illustrating a concentration of profits among a small group of successful traders.
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Transaction Costs: Loss-making traders incurred an additional 28% of net trading losses as transaction costs, including brokerage, clearing fees, exchange fees, SEBI turnover fees, STT, and GST. This emphasizes the impact of frequent trading on overall transaction costs.
In conclusion, the Sebi report provides a comprehensive analysis of individual trader performance in the F&O segment, shedding light on profitability, participation trends, and the evolving demographics of market participants. These insights are crucial for both seasoned traders and those looking to enter the dynamic world of F&O trading.
