While the number of unique individual traders who traded through a sample of the top-10 brokers in the equity futures and options (F&O) segment jumped five times to 4.52mn (million) in FY21-22, nine out of 10 individual traders incurred losses, says a research note from Securities and Exchange Board of India (SEBI).
"For the group of active traders (excluding outliers), on average, loss makers registered net trading loss close to Rs50,000 in FY21-22. For the group of active traders (excluding outliers), the average loss of a loss maker was over 15 times the average profit by a profit maker during FY21-22," SEBI says.
During FY21-22, 89% of the individuals who traded in index options and 82% of the individuals who traded in stock options incurred an average loss of Rs77,000 and Rs66,000, respectively. The percentage of loss-makers was 74% and 67% for index futures and stock futures, with an average loss of Rs96,000 and Rs2.1 lakh, respectively.
The SEBI analysis also reveals that the youngest age group (less than 20 years), which accounted for around 1% share in participation, witnessed the highest average profit by profit-makers as well as the highest average loss by loss-makers in the futures segment compared to all other age groups in FY21-22.
According to the note, only 11% of the individual traders in the equity F&O segment made a profit, with an average profit of Rs1.5 lakh. "The percentage went down marginally to 10% for active traders, though the average profit made by them went up to Rs1.9 lakh during the same period."
"For the group of active traders (excluding outliers), only 6% of individual traders in the equity F&O segment made a profit with an average profit of nearly Rs3,400 in FY21-22. The top 1% and top 5% active profit makers accounted for nearly 51% and 75% of the total net profit earned by all active profit makers, respectively," it added.
During FY21-22, the average profit earned by profit-makers was highest in stock futures at Rs2.4 lakh, followed by index options at Rs92,000.
During FY21-22, the average loss incurred by female loss-makers as well as the average profit made by female profit-makers was higher than their male counterparts in all product categories; however, females had less than 20% share in participation, it added.
The analysis shows among all the unique individual traders who traded in the equity F&O segment, 98% traded in options while 11% traded in futures during FY21-22, compared to 89% and 43%, respectively, during FY18-19.
During FY21-22, the share of young individual traders' (20-30 years) participation in the equity F&O segment, especially in index options and stock options, went up beyond 30% each from nearly 11% in FY18-19.
Trading in markets is not free, and traders have to incur transaction costs, including brokerage, clearing fees, exchange fees, SEBI turnover fees, and other taxes. According to SEBI analysis, during FY21-22, over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs, for the group of active traders, excluding outliers, reflecting frequent trading. For non-active traders who made losses, the percentage was significantly low at 8%.
Since aggregate transaction cost is generally directly proportional to the number of trades executed by a trader, higher transaction cost indicates frequent trading.
"Even those making net trading profits, incurred between 15% to 50% of such profits as transaction cost. However, the percentage was significantly low at 6% for non-active traders who made profit," SEBI says.
During FY21-22, the transaction cost as a percentage of net trading profit, declined across all product categories over FY18-19, the market regulator says, adding, "During FY21-22, transaction cost as percentage of net trading profit, was highest for index options at 21%, followed by index futures at 17%, whereas, it was comparatively lower for stock futures at 11% and stock options at 8%."