India’s retail equity F&O (futures and options) boom has seen its first annual decline in participation, as fewer new traders enter the market and exits surge.
The number of active individual traders in equity derivatives fell about 18% year-on-year to around 8.8 million in fiscal year 2026 (FY26), from over 10 million in FY25, according to the latest report by the Securities and Exchange Board of India (Sebi).
The decline marks a break in a market that expanded rapidly after FY21, fuelled by a prolonged bull run, low fees and the spread of mobile trading apps.
Trading activity also lost momentum. Over the last decade, notional turnover in the equity derivatives segment rose from ₹692 trillion in FY16 to ₹110,418 trillion in FY26. Growth was strongest between FY21 and FY24 but has since moderated. After expanding 20.4% in FY25, notional turnover grew just 4.2% in FY26, well below the exceptionally high rates seen in earlier years, the report highlighted.
But the bigger shift was in the flow of newcomers into the market.
The pullback came amid Sebi's phased introduction of stricter risk-management measures between November 2024 and April 2025. Key measures included limiting weekly derivative 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.
“These are not market failures, they are policy successes. Nine out of 10 retail traders were losing money in F&O, with aggregate losses peaking at ₹1.12 trillion in FY25. Pruning that pool was the right call. A partial rebound in activity is likely once participants adjust to the new framework; premium turnover already recovered 38% in H2 FY26 after the initial contraction. But the quality of participation will be better than before, and that matters more than the volume,” said Rajesh Singla, chief executive and fund manager at Alpha AMC.
New entrants fall
The decline was concentrated primarily in options, which account for the overwhelming majority of individual equity derivatives traders, according to the Sebi report. Futures participation remained much smaller, although participation in index futures fell particularly sharply.
The number of new traders entering equity derivatives peaked at 4.31 million in FY24 and declined in each of the following two years—to 3.43 million in FY25 and 2.08 million in FY26. That was a decline of about 39% in FY26, the Sebi report said.
At the same time, exits have surged. The number of traders leaving the segment rose from 420,000 in FY22 to 4.57 million in FY26, more than tenfold. The exit rate, measured as a share of the previous year’s trader base, climbed from 16% to 43% over the same period.
Harshal Dasani, business head at INVasset PMS, said, "The data show a genuine behavioural change. The 39% collapse in new entrants is the most meaningful number because it means the funnel has narrowed at the top, rather than merely the base thinning. Higher lot sizes and expiry rationalisation raised the cost of casual speculation, which was the intent.”
“However, the 45.7 lakh (4.57 million) exits also tell us that most traders left after losing money, not after learning. Trading activity typically rebounds when volatility returns and memories fade. The durable test is whether the next bull phase brings back speculation or genuine investment. Regulation can raise barriers; it cannot manufacture patience,” he added.
“Taken together, new entrants and exits produced a negative net addition to the trader base in FY26, the first such reversal in the period studied,” the Sebi report said.
That makes the FY26 decline look more like a retrenchment than a reversal of the broader post-FY21 expansion, the report highlighted.
Repeat traders rise
The changing flow of traders is also reshaping the composition of the market. First-time derivatives traders accounted for 59% of the trader base in FY22, but just 24% in FY26. Repeat traders—those who had been active in the segment previously—now make up roughly three out of every four derivatives traders, up from about two out of every five in FY22.
The trend points to a market becoming less dependent on a constant influx of new retail participants, even as the overall trader base remains large.
The slowdown is even sharper among people entering the equity market altogether. The number of investors who opened their first demat and trading account and traded in the equity segment for the first time fell to 470,000 in FY26, from 1.28 million in FY25 and 3.53 million in FY22.
These first-time entrants accounted for only 6% of FY26 traders and 2.8% of the total active trader base, the report highlighted.
The shift marks a break from the boom years: the derivatives market is becoming less dependent on new retail entrants and increasingly dominated by repeat traders.
Mayur Bhalerao contributed to the story.