Despite safety measures implemented by Sebi, India’s equity derivatives market continues to be characterised by high retail trader losses, predominant short-dated contracts, and ongoing structural concerns, raising questions about future reforms to protect ordinary investors.
India’s equity derivatives market has become safer than it was two years ago, but not yet safe enough. Since the Securities and Exchange Board of India first examined futures and options trading in January 2023, three problems have remained stubbornly in view: most retail traders keep losing money, expiry-day volumes in index options can dwarf the cash market, and the market is still heavily skewed towards very short-dated contracts.
According to Sebi’s latest study, active individual F&O traders fell 18% in FY26, to 8.75 million, marking the first annual decline since FY16. Aggregate losses also eased, though they remained enormous: the study put gross trading losses for individuals at roughly ₹72,000 crore, alongside about ₹25,000 crore in transaction costs. Other coverage of the same study, including reports by Moneycontrol and Business Standard, put net losses at ₹91,685 crore and said 87.7% of individual traders lost money, underlining how persistent the problem remains.
The burden continues to fall disproportionately on smaller and less experienced investors. Sebi’s study found that of the 12.2 million individuals who traded derivatives over FY25 and FY26, 35% had no equity holdings at all. Those with portfolios below ₹1 lakh accounted for 70% of total losses, while roughly three-quarters of traders for whom income data was available reported annual earnings below ₹5 lakh and were responsible for more than half of losses. The regulator has also said the boom in derivatives trading has become a broader household-savings issue, because money is being channelled into speculation rather than capital formation.
That is why Sebi has moved in steps rather than with a single sweeping intervention. A consultation in July 2024 targeted the frenetic trading that tends to build around expiry-day index options, and the final measures in October 2025 sharply cut back weekly expiries while making such trading more expensive. A second consultation in February 2025 focused on market-stability risks, including the mismatch between large derivatives positions and the far smaller cash market used to settle them. Sebi then shifted exposure measurement on to a cash-equivalent basis, a move designed to prevent oversized positions from being carried into expiry.
The structural concerns have not disappeared, however. Even after recent curbs, expiry-day turnover in index options still made up 59% of FY26 activity, down from 70% in FY25, and 97% of that trading took place within seven days of expiry. Barely 1% occurred beyond 10 days, leaving India with a derivatives market that is still unusually short term. The cash market has grown, but not enough to eliminate the gap between option exposure and underlying liquidity, and that has revived calls to deepen securities lending and borrowing and consider removing securities transaction tax from cash equities.
For now, the policy question is less about whether derivatives should be restricted and more about how they should be made more suitable for ordinary investors. Speculation will always be part of markets. But when low-income traders with little or no equity exposure keep taking large positions in complex contracts and losing money, Sebi has good reason to keep testing whether the rules on suitability, margins and expiry structure are strict enough. The central task is to build a more durable market, not simply a busier one.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
