Can Experience Change the Math of F&O Trading?

How do individual participants fare when they step into the fast paced world of financial derivatives?

A recent regulatory study by the Securities and Exchange Board of India (SEBI) provides detailed insights into this question. The study analyzed individual trading behaviors in the equity derivatives segment from the fiscal year 2022 to the fiscal year 2026. The findings show that a large majority of individual participants ended their trading journey with net losses, highlighting the complex nature of these financial instruments.

Before examining the numbers, let us understand what this market actually is and why it exists.

What is F&O and Why Does It Exist?

To understand this story, we need to understand a couple of basic terms.

Derivatives are financial contracts. Their value is derived from (or depends on) an underlying asset, like a company's stock or a market index like the Nifty.

There are two main types of derivatives: Futures and Options (which is why people call it F&O).

Think of a Future as a contract where you agree to buy or sell a stock at a fixed price on a future date. It is like locking in a price today for a transaction that will happen later.

Think of an Option as an agreement that works similarly to an insurance policy. For example, if you own shares in a company, you might purchase an "option" to protect yourself if the stock price drops. You pay a small fee (called a premium) to purchase this protection. If the stock price does not drop, the option contract expires without being exercised, and the seller of the option keeps the premium.

In the financial system, F&O contracts exist to help investors and companies manage their risks. However, over the last few years, many individual retail traders in India have started using F&O for short term position taking, looking to benefit from price movements rather than managing underlying portfolio risks.

What Has Changed?

In the last five years, technological developments have shifted how individuals participate in the market. Mobile trading applications made it simple to open an account and place trades.

Because purchasing options requires a relatively small cash outlay (the premium), it has become an accessible way for individuals to take leveraged market positions. This lower entry barrier has attracted many young individuals and lower income households.

During the fiscal years of 2025 and 2026 combined, over 1.23 crore unique individual traders participated in the equity derivatives segment. However, this rapid growth in participation has coincided with significant financial outflows for many retail households.

How Big is the Problem?

The aggregate financial outcomes of individual derivatives trading are highly significant.

Over the combined two-year period of the fiscal years 2025 and 2026, individual traders incurred a total net loss of Rs 2.03 lakh crore.

If we look at the five-year window from the fiscal year 2022 to the fiscal year 2026, the cumulative net losses for individual traders in the sample reached Rs 3.85 lakh crore.

For context, the aggregate net losses in the fiscal years 2025 and 2026 were higher than those in the preceding three fiscal years combined (which stood at Rs 1.81 lakh crore).

The probability of incurring a loss is high. During the combined fiscal years of 2025 and 2026, nine out of ten individual traders (91.0%) ended up making net losses. Out of 1.23 crore participants, 1.11 crore individuals made net losses. On average, an individual retail participant lost Rs 1,65,935 over this two-year period.

Is It Getting Better or Worse?

Let us track the yearly numbers in the sample to understand the trend:

• Fiscal Year 2022: There were 42.74 lakh traders. 90.2% of them made losses, with a total net loss of Rs 40,824 crore. The average net loss per trader was Rs 95,517.
• Fiscal Year 2023: The trader base rose to 58.35 lakh. Loss-makers stood at 91.7%, with total net losses of Rs 65,747 crore. The average net loss per trader was Rs 1,12,677.
• Fiscal Year 2024: Active traders stood at 86.26 lakh. Loss-makers stood at 91.1%, with total net losses of Rs 74,812 crore. The average net loss per trader was Rs 86,728.
• Fiscal Year 2025: Participation stood at 98.10 lakh traders. Loss-makers stood at 90.9%, with total net losses of Rs 1,11,788 crore. The average net loss per trader was Rs 1,13,913.
• Fiscal Year 2026: The first moderation in participation occurred. Active individual traders in the sample fell to 78.60 lakh. Loss-makers stood at 87.7%, and total net losses fell to Rs 91,685 crore.

Even though participation and total losses moderated in the fiscal year 2026, the average net loss per active trader rose to Rs 1,16,654, which is the highest level across all five years. This indicates that while the overall number of traders declined, the average financial impact on those who remained active increased.

Who is Losing the Money?

The SEBI data indicates that net losses are widely distributed across different demographic groups:

• Young Traders under 30: Young people represent a significant share of participation. In the fiscal year 2026, they made up 43% of all individual derivatives traders. Within this group, 88.55% incurred net losses.
• Lower-Income Cohorts: In the fiscal year 2026, about 73% of derivatives traders had declared annual incomes below Rs 5 lakh. This group accounted for 53% of all retail losses, which was higher than their 43% share of trading turnover.
• Traders with No Underlying Stocks: Approximately 35% of derivatives traders did not hold any cash equity or mutual funds in their demat accounts at the end of March 2026. This group had a net loss rate of 93%.
• Options Traders: Options are much more popular than futures, but they also account for the vast majority of losses. During the fiscal years of 2025 and 2026, options trading accounted for 91.6% of all individual net losses (over Rs 1.86 lakh crore).

The Role of Experience in Trading Outcomes

There is a common belief that F&O trading is a skill that improves steadily with practice and time spent in the market.

However, the regulatory data suggests a different reality.

In the fiscal year 2026, regular (experienced) traders who had active trading histories since the fiscal year 2022 faced an 87.69% loss rate. This is nearly identical to the 87.81% loss rate of brand-new traders who had just entered the market in the fiscal year 2026.

Experience did not correlate with a higher probability of profitability. While regular traders have more market familiarity, they also tend to trade with larger position sizes.

In the fiscal year 2026, experienced traders took on 2.4 times more trading exposure relative to their portfolio size compared to new traders. Because of this higher exposure, experienced traders ended up losing more than double the amount of money on average (Rs 1,35,716 compared to Rs 58,620 for new traders).

This shows that longer market participation does not automatically lead to better net outcomes if trading exposure is increased proportionally.

The Impact of Transaction Costs

Frictional costs represent a significant factor affecting net profitability in F&O trading.

Every transaction involves multiple fees, including brokerage charges, Securities Transaction Tax (STT), GST, exchange transaction fees, stamp duty, and SEBI fees.

In the fiscal year 2026, individual traders incurred a total of Rs 24,859 crore in transaction costs. Over the five years from the fiscal year 2022 to the fiscal year 2026, cumulative transaction costs reached approximately Rs 1 lakh crore.

In the fiscal year 2026, the breakdown of these costs was:

• Brokerage Charges: 44.3% (the largest single component).
• Securities Transaction Tax (STT): 26.7%.
• Exchange Transaction Fees: 15.8%.
• GST: 11.0%.
• Stamp Duty and SEBI Fees: 2.2% combined.

These costs represent a material drag on trader capital. In the fiscal year 2026, transaction costs made up 35% of the gross losses of loss-making traders.

Frictional costs also turned 4.4 lakh traders in the fiscal year 2026 who had positive gross trading profits before fees into net loss-makers after accounting for all charges.

Different Participant Categories in the Market

Who is on the other side of these transactions? The market consists of several distinct categories of participants.

While individual retail traders incurred Rs 1.70 lakh crore in gross trading losses over the combined fiscal years of 2025 and 2026, other market participants recorded gross profits.

Proprietary trading firms (PROP) made Rs 90,400 crore in gross profits, and Foreign Portfolio Investors (FPIs) made Rs 45,000 crore in gross profits over the same two years.

The data shows that approximately 99% of PROP and FPI profits in options trading were generated by algorithmic systems. These systems utilize advanced technology and automation, presenting a different execution environment compared to manual retail trading.

SEBI's Risk-Mitigation Measures

To address market risks and protect individual participants, SEBI implemented several measures on November 20, 2024. These included limiting weekly option expiries to one index per exchange, increasing the minimum contract size to Rs 15 to 20 lakh, and increasing margin requirements on expiry days.

These policy adjustments led to notable changes in participation:

• Lower Participation: Between the second quarter and the fourth quarter of the fiscal year 2025, the number of active unique traders fell by 25.4% (and unique index options traders fell by 26.8%).
• Turnover Moderation: Average daily premium turnover in index options fell by 17.4% initially.
• Activity Trends: While the measures helped reduce participation among smaller retail traders, the highly active participants who remained continued to trade intensively. By March 2026, the daily premium turnover in index options adjusted and rose to new levels, showing that overall activity remained significant.

Risk Management Insights for Investors

The purpose of analyzing these trends is to provide a realistic, data-led framework so that individuals can make informed decisions regarding risk management.

Based on SEBI's findings, here are the key risk-management observations:

1. Maintain an Underlying Investment Portfolio: Trading without a baseline investment in cash equity or mutual funds is associated with the highest rate of net losses (93%). Having a solid long-term investment core is a key risk-mitigation factor.
2. Manage Trading Frequency and Scale: Higher trading intensity and turnover are strongly correlated with larger average losses. Restricting the frequency of trading can help control downside risks.
3. Incorporate All Frictional Fees into Planning: Transaction costs represent a significant percentage of gross trading outcomes. Trading frequently can lead to a substantial accumulation of fees, making net profitability harder to achieve.
4. Understand the Risk profile of Near-Expiry Contracts: Options contracts close to their expiry day are subject to high volatility and rapid time-decay. Reducing exposure to these ultra-short-term contracts can lower the risk of sudden losses.
5. Managing Exposure After Losses: The data shows that experienced traders who trade more intensively     often end up with larger net losses than beginners. Managing position sizing carefully is essential 

The Big Picture

The F&O market is a sophisticated environment characterized by high leverage, near-expiry volatility, and significant transaction costs.

For most individual participants, achieving consistent net profitability remains challenging due to the structural nature of these instruments and the presence of highly automated institutional participants.

Rather than serving as a primary tool for wealth creation, F&O trading often results in a net transfer of capital from retail accounts to institutional desks. A clear understanding of these statistical realities is an essential foundation for long-term financial planning and capital preservation.