Sebi's latest study on India's derivatives market has found that 88% of individual futures and options (F&O) traders lost money in FY26 — the Indian fiscal year running from April 2025 to March 2026 — with options accounting for 92% of aggregate losses. Retail losses remained substantial even as trading volumes declined, according to the study by the Securities and Exchange Board of India (Sebi), the country's markets regulator. Aggregate individual losses for the year came to Rs 91,685 crore.

The findings come from one of the world's most heavily traded derivatives markets. India's National Stock Exchange has ranked among the largest derivatives exchanges globally by contracts traded, and index options account for the bulk of its turnover. Because an option premium is only a fraction of the exposure it controls, options carry built-in leverage, and long premiums typically lose time value as expiry approaches — structural features that amplify both gains and losses for participants.

Buffett's warning against F&O

The findings reinforce Warren Buffett's longstanding warnings about derivatives. In his 2002 letter to Berkshire Hathaway shareholders, Buffett called derivatives “time bombs, both for the parties that deal in them and the economic system.” In the same letter, he described derivatives as “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” Buffett's letter centred on the leverage and counterparty risk embedded in such contracts; the Sebi data documents the cost borne by individual participants trading leveraged, short-dated contracts.

Why Indian regulators are sounding the alarm

Sebi has introduced a series of measures aimed at curbing excessive speculation and protecting small investors, including a higher Securities Transaction Tax (STT) on options that took effect on October 1, 2024, which raised the levy on option premiums to 0.1% from 0.0625%. Other measures implemented in late 2024 included limiting weekly index options expiries to one benchmark per exchange — Nifty contracts at the NSE and Sensex contracts at the BSE — and increasing minimum contract sizes for index derivatives to Rs 15 lakh from the earlier Rs 5–10 lakh range. FY26 was the first full fiscal year with these rules in force, making the study an early measure of retail outcomes under the tightened regime.

The FY26 results extend a pattern documented in earlier Sebi research. A January 2023 Sebi study found that 89% of individual equity F&O traders lost money in FY22, with average losses of about Rs 1.1 lakh per trader including transaction costs. A September 2024 follow-up put the share of loss-making individual traders at 91.1% in FY24 and estimated combined losses of Rs 1.81 lakh crore across FY22–FY24. Derivatives are zero-sum — one side's gain is the other side's loss — and in FY26 proprietary desks earned Rs 44,000 crore even as small traders bore about 70% of overall losses, underscoring the professional, well-capitalised counterparties active on the other side of retail trades. Sebi has published these recurring studies alongside its tightening of rules, and future editions will show whether the loss ratio narrows under the measures now in place.

Related coverage

• Rs 91,685 crore gone: 88% retail investors lost money in F&O trading in FY26 even after strict Sebi rules
• Losing game: How India's small F&O traders carried 70% losses while prop desks made Rs 44,000 crore

Source: Economic Times Markets