SEBI Rules Curb Retail Derivatives Trading in India

India’s derivatives market experienced a significant decline in retail investor participation during FY26, a direct result of stricter regulations from the Securities and Exchange Board of India (SEBI). For the first time since FY15, more traders exited the equity derivatives segment than entered, reversing a decade of growth.

Retail Exodus and Market Reversal

The latest SEBI study indicates a substantial shift in retail investor sentiment and activity within the derivatives market. This period saw a significant number of traders withdrawing from the segment, marking an unprecedented reversal of previous trends.

• The number of traders exiting the equity derivatives segment surpassed new entrants by approximately 2.5 million.
• Active traders in the market decreased by 18%, ending a growth trajectory that had persisted for ten years.
• The average loss incurred per trader marginally increased to about Rs 1.17 lakh in FY26.

Options Trading Dominates Losses

The analysis revealed a heavy concentration of losses within specific trading instruments and strategies. Options trading, in particular, was a primary contributor to the overall financial setbacks experienced by individual traders.

• Options trading accounted for 92% of the aggregate losses incurred by individual traders.
• Trading activity remained highly concentrated, with 59% of index options turnover originating from same-day expiring contracts.

Proprietary Traders See Significant Profits

In stark contrast to the retail sector, proprietary traders, including global participants and foreign firms, recorded substantial profits during the same fiscal year. Algorithmic trading played a crucial role in these gains for professional entities.

• Proprietary traders achieved the highest gross trading profit, amounting to approximately Rs 44,000 crore.
• Foreign Portfolio Investors (FPIs) and corporates also reported profits, following proprietary traders.
• Algorithmic traders were responsible for approximately 99% of the profits earned by FPIs and proprietary traders.

Varied Loss Experiences by Investment Size

The study further detailed how losses varied among traders based on their capital deployment. While losses were widespread, the magnitude differed considerably across investment tiers.

• Among traders deploying less than Rs 1 lakh, 90.18% incurred losses, with their average loss being Rs 44,000.
• For those deploying over Rs 1 lakh, 81.13% incurred losses, facing a substantially higher average loss of Rs 9.19 lakh.
• Notably, the average loss among traders deploying less than Rs 10,000 nearly halved from FY25 to FY26.
• Predominantly options sellers were the only group to record a positive median return of 1% in FY26.

Overall, the SEBI study provides a clear picture of how stricter regulations have reshaped India’s derivatives market, leading to a significant reduction in retail participation and a pronounced divergence in profitability between individual and institutional traders.