Key Highlights from SEBI Data:
New Traders in FY24: 42 lakh new Futures and Options (F&O) traders entered the market during FY24. These new traders, defined by SEBI as those who placed their first trades within the last three years, accounted for nearly half of all traders in the fiscal year.
Significant Losses for New Traders: According to SEBI's data, a staggering 92.1% of these new traders suffered losses, averaging a net loss of approximately ₹46,000 per trader in FY24.
Losses Not Limited to New Traders: While new traders incurred losses, experienced or "Regular Traders" were not exempt. SEBI defines regular traders as those who have been active in F&O trading for three consecutive years (FY22 to FY24). In FY24, about 88% of regular traders faced losses, averaging a substantial ₹1.50 lakh per person.
Deepening Losses Amid Market Highs: Despite the broader markets reaching new highs during the fiscal year, the data showed that loss-making traders experienced deeper losses compared to the profits of those who did make money. On average, loss-making traders suffered a loss of ₹1.20 lakh per person, while profit-making traders earned ₹1.03 lakh per person.
Cost of Transactions: Another significant factor adding to traders' woes was the cost of transactions. SEBI's study showed that traders who incurred losses faced a higher transaction cost relative to their losses. Losing traders bore about 27% of their transaction costs on top of their net losses, while profitable traders incurred approximately 22% of transaction costs as a percentage of their gross profits.
Analysis of SEBI's Findings:
The data highlights a key trend in F&O trading: whether a trader is new or experienced, the derivative market has been unforgiving, with most participants ending up in the red. While many new traders are drawn to the market with hopes of quick profits, the reality revealed by SEBI is that only a small fraction manage to consistently earn a profit, and even those who do often face high transaction costs.
The losses of new traders, who accounted for a significant portion of the market, could be attributed to factors such as lack of experience, high transaction costs, and the complexities of F&O trading, which is often dominated by more seasoned investors or institutional players. The heavier losses for regular traders suggest that even those with experience are not immune to the challenges of F&O markets, where volatility and leverage can lead to significant financial setbacks.
Implications for Retail Investors:
For retail investors considering entering the F&O market, SEBI's data serves as a cautionary tale. The high percentage of loss-making traders underlines the risks inherent in F&O trading, which may not be suitable for all investors. Additionally, the report suggests that traders should be mindful of transaction costs, which can further erode their returns, especially for those already facing losses.
Conclusion:
SEBI's data on F&O trading in FY24 offers a sobering reminder of the challenges faced by traders, particularly new entrants. The high percentage of loss-making traders and the significant financial losses incurred indicate that caution, experience, and careful risk management are critical for anyone participating in these markets.
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