Losses fell, but 87.7% of individuals still lost money in equity derivatives: SEBI’s FY26 data are a warning, not a victory lap

The number that matters is still 87.7%

India’s derivatives market became smaller and somewhat less destructive for individual traders in FY26.

That is progress.

But SEBI’s latest study still points to a brutal base rate: **87.7% of individual traders incurred net losses**.

The proportion improved from 90.9% in FY25 and 91.1% in FY24. Aggregate individual losses also fell sharply. Yet “fewer people losing” is not the same as “retail derivatives trading has become a high-probability path to profit”.

For most individuals, it remains the opposite.

Participation cooled after tighter rules

Active individual traders fell to about **78.6 lakh**, roughly 20% below 98.1 lakh.

That is consistent with tighter index-derivative rules, larger contracts and other risk controls changing participation.

Reducing speculative activity can lower total losses even if the probability of loss for the remaining trader changes only modestly.

Aggregate losses improved

Individual gross losses were reported around **₹72,243 crore**, down about 26% from ₹97,882 crore.

That is a meaningful reduction.

But the question for an individual is not whether the market lost fewer crores. It is whether **their own expected return after brokerage, taxes, slippage and behavioural mistakes is positive**.

The base rate suggests most should begin with the assumption that it is not.

Why professionals can profit when individuals lose

Proprietary trading firms reported gross profits of around ₹44,483 crore.

Professional firms may have advantages in execution speed, automated risk management, option-pricing models, market making, transaction costs and portfolio diversification.

A retail trader using a phone is not competing only with another person looking at the same chart. They often trade against institutions built specifically to price and manage short-lived market opportunities.

Options are the centre of gravity

Options reportedly generated roughly **98% of proprietary traders’ gross profits** and more than 90% of individual gross losses.

Options are useful financial instruments for hedging and professional risk transfer. They are also dangerous when used as lottery-like directional bets.

A low premium can look cheap even when the probability-weighted payoff is poor.

Small premium does not mean small risk

A ₹5 option can appear less risky than a ₹500 share because the cash outlay is smaller.

Economically, it can be far riskier because the option can expire worthless. Repeated small premium losses accumulate. Traders then often increase position size to “recover”, creating a behavioural feedback loop.

The correct unit of analysis is not one premium. It is the **loss distribution across many trades**.

Why win rate is misleading

A trader can win on 70% of trades and still lose money if the losing trades are much larger than the winners.

A professional strategy can win less often but tightly control loss size.

A serious trading journal therefore tracks expectancy, drawdown, risk per trade and total charges—not only the number of green trades.

What the improvement tells regulators

The decline in participation and aggregate losses suggests regulation can change behaviour.

But if nearly 88% still lose, product design and investor education remain relevant.

Areas for continued scrutiny include leverage, expiry concentration, risk disclosures, gamification, suitability, transaction-cost visibility and default order settings.

The goal should not be to eliminate derivatives. They perform legitimate hedging and price-discovery functions. The objective is to reduce uninformed use that resembles high-frequency gambling.

Long-term investing is economically different

Buying a diversified equity portfolio is not the same as repeatedly taking leveraged, expiring derivative positions.

An equity owner participates in long-term business cash flows. An option trader must often be right about direction, magnitude and timing.

That additional dimensionality makes the task much harder.

A Finin2min pre-trade test

Before an individual uses derivatives, they should be able to answer:
- What is the maximum loss?
- What happens if volatility changes but price does not?
- How much time decay occurs?
- What is the break-even price?
- What share of capital is at risk?
- What are total fees and taxes?
- What is the exit rule?
- Is this a hedge or a speculative bet?

If these cannot be answered, the position is probably not understood well enough to take.

Finin2min bottom line

FY26 was less bad for individual derivatives traders than FY25.

That is not the same as being good.

When **nearly seven out of eight individuals still lose**, the default posture should be scepticism, small risk and education—not confidence created by an easy trading interface.