Retail Roulette: SEBI’s New Rules Aim to Break the Cycle of Derivatives Despair

India's capital market watchdog, SEBI, released a landmark comparative study of the phenomenal rise of the equity derivatives segment over the cash market—while sounding alarm at mounting losses of retail traders in spite of a succession of regulatory actions in the past couple of years.

 

The research, published in July 2025, shows that net losses of retail traders in the equity derivatives segment increased by a staggering 41% over the past year to ₹1.06 trillion in FY25. This is while India has emerged as the world's largest equity derivatives market, with almost 60% of contracts traded globally as of April 2025.

 

Key Highlights

 

Derivatives Market Soars to New Heights: India's equity derivatives market continues to lead the cash market in terms of volume and growth on account of a retail and institutional participation boom.

 

Increase in Retail Losses: Individual traders' net losses totaled ₹1.06 trillion in FY25, up 41% from the previous year. Over 91% of retail participants were in the negative, and the average loss per individual went up substantially.

 

Younger Riskier Traders: The percentage of traders aged below 30 increased from 31% in FY23 to 43% in FY24, and almost 93% of them made losses. Traders with lower incomes (₹5 lakh or less annually) accounted for 76% of total F&O traders in FY24.

 

SEBI's New Rules: SEBI, in turn, brought in more stringent risk management and supervisory regulations for derivatives trading with the following:

 

Delta-based open interest calculation to enable better risk measurement.

 

Stricter position limits on single-stock derivatives currently tied to cash market liquidity.

 

Common contract expirations and enhanced intraday surveillance in order to limit speculative trading.

 

Institutional Profits, Retail Pain: Institutional investors like FPIs and proprietary traders garnered huge profits, bringing the gap between professional and retail participants to a wider stage.

 

SEBI's report identifies the need for greater investor awareness and strengthened protection as India's derivatives market continues to grow at a rapid rate.

 

Source: India Today, Economic Times, Angel One, SEBI Reports, July 2025