F&O Losses Rise With Derivatives Bets: What SEBI’s Study Found

Greater participation in the cash market is associated with lower loss rates and smaller average losses among futures and options (F&O) traders, according to a study by the Securities and Exchange Board of India (SEBI).

The study, authored by Prasad Patankar, Assistant General Manager, and Prabhas Kumar Rath, Chief General Manager, of SEBI’s Department of Economic and Policy Analysis, examined trading patterns among India's derivatives traders.

Of the 81.6 lakh F&O traders in FY26, around 18.6 lakh had no cash-market turnover, accounting for 24% of the total.

More than 54% recorded cash-market turnover below ₹1 lakh, while only around 8% had cash-market turnover exceeding ₹1 crore.

Higher Cash Exposure, Lower Loss Rates

SEBI’s analysis found that the proportion of traders making losses declined progressively as their cash-market activity increased relative to their derivatives turnover.

In FY26, around 90% of traders whose cash-market turnover was less than 10% of their F&O turnover were loss-makers.

The proportion declined to about 84% among traders whose cash-market turnover was more than five times their derivatives turnover.

The gap becomes even wider when the size of losses is considered. Traders with cash-market turnover below 10% of their F&O turnover recorded an average loss of approximately ₹2.07 lakh per trader.

This dropped to around ₹15,000 among those whose cash-market turnover exceeded their F&O turnover by more than five times.

Trading intensity also differed significantly between the groups. Average F&O turnover stood at around ₹5.44 crore per trader in the lowest cash-participation category, compared with approximately ₹10 lakh among traders whose cash-market turnover was more than five times their F&O turnover.

The findings indicate that traders heavily concentrated in derivatives tended to have both higher loss rates and substantially greater trading intensity.

For traders with F&O turnover between ₹10 lakh and ₹1 crore, for example, around 91% of those with no cash-market activity were loss-makers, compared with 82% among traders whose cash-market turnover exceeded ₹10 crore.

SEBI, however, cautioned that losses remained widespread even among traders with significant cash-market participation.

Within similar levels of cash-market activity, higher F&O turnover was generally associated with a greater proportion of loss-makers. The pattern was broadly consistent in FY25 as well.

Investors Are Moving Towards Derivatives

The study also points to a significant change in how investors enter the derivatives market.

Among the cumulative 1.68 crore investors tracked between FY22 and FY26, around 60% had traded in the cash market before entering derivatives.

Another 37% began trading in both segments during the same year, while only 3% entered derivatives before participating in the cash market.

However, derivatives-only participation has grown sharply. The number of investors trading exclusively in derivatives increased from less than 1 lakh before the Covid-19 pandemic to more than 18 lakh in FY26.

These 18.6 lakh traders represented around 24% of the total F&O trader base.

The study also found that leaving the derivatives market did not necessarily result in a shift towards cash equities.

Among investors who traded F&O in FY22 and subsequently stopped, around 35% had also stopped trading in the cash market by FY23. By FY26, that proportion had risen to approximately 58%.

Overall, the findings highlight the growing concentration of retail participation in derivatives and show a clear association between heavier derivatives exposure and higher trading losses, while greater participation in the cash market is associated with relatively lower loss rates and smaller losses.