Prop Traders Profit in Derivatives; Retail Traders Lose

Proprietary trading desks emerged as the primary beneficiaries within India’s equity derivatives market, consistently generating substantial profits during fiscal years FY25 and FY26, according to a recent study by the Securities and Exchange Board of India (Sebi).

In stark contrast, individual investors faced significant losses across both periods. This highlights a persistent trend where institutional players outperform the broader retail segment.

Key Market Disparities

• Approximately 91% of retail traders incurred losses in FY25.
• This figure slightly improved to 88% of retail traders experiencing losses in FY26.
• Proprietary traders recorded gross profits of Rs 45,955 crore in FY25.
• Their profits remained robust at Rs 44,483 crore in FY26.
• This represented a modest 3% year-on-year decline for prop desks.

The consistent profitability of proprietary traders was predominantly driven by options trading, which accounted for a significant 95-98% of their gross profits. Algorithmic trading further underscored this dominance, contributing to 99% of prop profits in FY26, indicating a highly sophisticated operational approach.

Retail Trading Dynamics

Experts point out that nearly all retail options trading occurs in highly speculative, short-expiry index options, frequently on the expiry day itself. This inherent risk profile contributes significantly to the observed losses among individual investors.

• Many retail traders operate with minimal or no underlying equity portfolios.
• These traders disproportionately contribute to market turnover.
• Their participation is often driven by speculation rather than hedging strategies.

Looking ahead, the equity derivatives market may see future trading volumes decline. This potential shift is attributed to forthcoming regulatory reforms and new Reserve Bank of India (RBI) norms concerning bank guarantees for proprietary traders, signaling a tightening environment.