According to the profitability study, active individual traders fell by about 20%, from 9.81mn (million) in FY24-25 to 7.86mn in FY25-26. New entrants declined by about 40%, indicating a moderation in retail participation in the segment.
SEBI said aggregate net losses of individual traders declined to about ₹91,685 crore in FY25-26 from around ₹1.12 lakh crore in FY24-25. Despite the decline in total losses, nearly nine out of 10 individual traders continued to lose money.
The average loss per trader, however, increased marginally to about ₹117,000 during FY25-26.
Options Remain the Biggest Source of Losses
Options trading continued to account for the overwhelming share of losses among individual investors. Around 92% of aggregate losses incurred by individuals came from options trading.
Trading activity was also heavily concentrated in options. SEBI's separate study on trading behaviour found that nearly 97% of individual traders predominantly followed options-buying strategies, while only around 2% were classified as predominantly options sellers.
Options buyers recorded substantially weaker outcomes than options sellers. SEBI said options sellers were the only strategy group to record positive median returns on capital employed during FY25-26.
The findings highlight the risks associated with frequent options trading, particularly for smaller investors with limited financial resources.
₹1 Lakh Crore Paid in Transaction Costs over Five Years
Individual traders incurred around ₹25,000 crore in transaction costs during FY25-26. From FY21-22 to FY25-26, their cumulative transaction costs totalled approximately ₹1 lakh crore.
SEBI said derivatives premium turnover moderated during FY25-26, but total transaction costs remained broadly unchanged because of the increase in securities transaction tax (STT), effective from 1 October 2024.
Trading was also heavily concentrated around contract expiry. Around 59% of index options turnover took place in contracts expiring on the same day, or zero days to expiry (0DTE). About 75% of turnover was in contracts expiring within one day, while 97% was concentrated in contracts expiring within one week.
Smaller Investors Account for Bulk of Losses
The studies found a strong relationship between the size of an investor's equity portfolio and the likelihood of incurring losses.
About 35% of individual equity derivatives traders had no equity holdings, while nearly 78% had equity portfolios below ₹100,000.
Traders with portfolios below ₹100,000 accounted for around 70% of aggregate losses despite contributing only about half of the turnover.
The loss rate declined steadily as equity portfolio size increased. It stood at 93% among traders with no equity holdings and fell to 58% for those with equity portfolios exceeding ₹10 crore.
SEBI's findings indicate that individuals with smaller financial resources were not only more vulnerable to losses but also tended to trade more intensively relative to their available capital.
Higher Trading Intensity Linked to Higher Losses
The trading behaviour study identified trading intensity as one of the strongest characteristics associated with trading outcomes.
SEBI defined trading intensity using multiple parameters, including the number of days traded in a year, turnover, turnover relative to capital employed and turnover relative to the investor's equity portfolio.
Across these measures, higher trading intensity was associated with higher loss rates.
Younger investors, lower-income groups and traders with relatively small equity portfolios exhibited substantially higher trading intensity relative to their financial resources.
The findings also suggest that experience alone did not improve outcomes. Traders who had participated in the equity derivatives segment for several consecutive years continued to record high loss rates.
Losses Tend To Persist
SEBI found significant persistence in losses among individual derivatives traders.
Around 90% of traders who incurred losses in two consecutive years and continued trading incurred losses again in the following year.
At a quarterly level, losses were also substantially more common than profits. Around 85% of trader-quarter observations were loss-making, while only about 15% were profitable.
Among traders who experienced both profitable and loss-making quarters, nearly 79% recorded average gains during profitable quarters that were smaller than their average losses during loss-making quarters.
The pattern suggests that even when traders managed to make profits in some periods, those gains often failed to offset losses incurred in others.
Loss-Making Traders More Likely To Stop Trading
SEBI also observed a strong relationship between previous losses and subsequent participation.
Between 28% and 40% of traders active in one quarter did not trade in the immediately following quarter. Among those who stopped trading, around 86%-89% had incurred losses in the preceding quarter.
The findings indicate that trading discontinuation was particularly common among investors who had recently experienced losses.
At the same time, the composition of retail participation has been changing. While many investors initially entered derivatives trading after participating in the cash market, the number of investors trading only in derivatives has increased significantly over time.
Institutional and Proprietary Traders Remain Profitable
The profitability study also compared gross trading outcomes across participant categories. Proprietary traders, including global participants operating in India in trading-member proprietary capacity and owned by foreign entities, recorded the highest gross trading profit at about ₹44,000 crore.
They were followed by foreign portfolio investors (FPIs) at around ₹14,000 crore, corporates at ₹8,000 crore, mutual funds at ₹3,000 crore and partnership firms and limited liability partnerships at ₹3,000 crore.
The gross trading loss of individual traders narrowed to about ₹72,000 crore before transaction costs.
SEBI noted that 99% of the profits earned by FPIs and proprietary traders were generated by entities classified as algo entities. These are entities that executed at least one trade using an algorithmic order during the year.
Retail Participation Moderates
The studies point to a significant moderation in individual participation in equity derivatives after years of rapid growth.
Active individual traders declined from 98.1 lakh in FY24-25 to 7.86mn in FY25-26, while the number of new entrants fell by about 40%.
A separate summary released by SEBI put the decline in individual participation at around 18%, to 8.75mn in FY25-26. The detailed profitability study, however, reports 7.86mn active individual traders, reflecting a difference in the measure or coverage used. The detailed study's methodology is based on client-level information from the top 15 brokers, representing about 90% of individual investors in the segment.
The trading behaviour study is primarily based on a random sample of 5,000 individual traders, along with profitability data from the top 15 brokers.
SEBI said the two studies are intended to provide evidence-based insights into the outcomes and behavioural characteristics of individual investors in the equity derivatives market.
The regulator said the findings cover multiple dimensions, including trading strategy, capital employed, turnover, trading intensity, investor demographics, trading experience, participation patterns and persistence of trading.
