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Millions of investors have ventured into India’s derivatives market in recent years, but just one out of 10 of them made any profit from the expedition, a new report showed.

According to the Securities and Exchange Board of India (Sebi), out of 4.52 million individual traders in futures and options (F&O) in FY22, only 11% made a profit in FY22. Out of the total participants, the number of individual active traders—defined as those who traded in the equity F&O segment over five times during the year—stood at 3.97 million (88%).

Graphic: Mint
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Graphic: Mint

The sample size of 4.52 million was taken from the top 10 brokers accounting for around 67% of the overall individual client turnover in the equity F&O segment during FY22.

The total number of unique individual traders, which was just 710,000 in FY19, swelled as many individual investors turned to the segment during the pandemic outbreak. However, even as interest in derivatives zoomed in the past three years, the share of profit-making traders dropped down from 13% in FY19 to 10% in FY22.

The report analysed the profit and loss statements of individual investors in the equity F&O segment for 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 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 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, the 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, securities transaction tax, and goods and services tax. 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 aged 30-40 years had the highest share in participation (39%) in FY22, but saw a decline from 43% in FY19.

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