A study by SEBI released on 25 January 2023 said that 90% of active traders in the EQUITY futures & Options segment incurred average losses of Rs 1.25 lakh during financial year 2022. But this is just the first part of this eye-opening report.
- The average absolute net loss of a loss maker was over 15 times the net profit made by a profit maker.
- Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
- The most interesting data is the number of individual traders in index options and stock options went up by nearly eight and five times , respectively, in the last three years.
- Among all the unique individual traders who traded in the equity F&O segment, 98% traded in options while 11% traded in futures during the FY22.
- The total number of unique individual traders who traded through a sample of top 10 brokers in the equity F&O segment was 45.2 lakh during FY22, up from 7.1 lakh during FY19.
The above information gives us pause to wonder what made these people rush to the riskiest of financial products to try their hand. One reason is the jaw-dropping claims being made by some option traders on YouTube and Twitter.
Just do a quick search on YouTube with the words “Option Trading CR crores Profit” and you will see so many people who claim to have made crores, some of them with zero risk!
Even assuming that all of them actually made those fabulous riches in a very short time, they number perhaps by a dozen or two, whereas we have over 40 lakh traders who lost money to these profitable traders and to the brokers by way of commissions and transaction costs.
What is the point of this post, you may ask. It is merely to highlight that traders should first learn how to trade regular cash markets, and try to become cosistently profitable there. The skill set required for option trading is of course slightly different, but traders need to learn how to control their emotions, how to control their losses and how to be selectively active. Only then should they consider trading derivatives, and even then, only if they have adequate risk capital. The option traders who make several crores are largely trading other people’s money and these other people who give them the risk capital are already super rich. The money these rich people give to discretionary traders is likely only a small percentage of their overall wealth. No one in his right mind will trade options with money that the family needs for a comfortable living.
Note: If you would like to read the SEBI report in full, here is the link: