The Longer You Trade F&O, The More Likely You Are To Lose, Finds Sebi Study

Practice is supposed to make traders better. A new study on the equity derivatives segment says the opposite happens.

A study released this month by the Securities and Exchange Board of India’s (Sebi) Department of Economic and Policy Analysis (DEPA) finds that the longer an individual trades futures and options (F&O), the more likely they are to lose money, not less, unlike the common assumption that experience helps traders making better decisions in the derivatives market

The report, "Trading Behaviour of Individual Traders in the Equity Derivatives Segment," covers FY25 and FY26 and is the fourth in a series of Sebi studies on retail derivatives trading since January 2023.

"Longer trading experience was not associated with improved outcomes," the report states. "The share of loss-makers increased from about 91 per cent among first-year traders to over 95 per cent among traders with four or more consecutive years of participation."

The underlying numbers, drawn from population-level broker data rather than a small sample, spell it out year by year. Among 7.49 million traders in their first year of participation, 90.97 per cent ended up net loss-makers. That rises to 94.4 per cent by the second year, 96 per cent by the third, and peaks at 96.5 per cent among traders with four consecutive years in the market. Even at five years, the figure holds at 95.3 per cent.

One In 200 Wins Consistently

The findings look even more concerning when Sebi tracked traders who entered the F&O market in FY22 over the next five years, through FY26. Among those who stayed active every single year, 65.6 per cent lost money in every one of those five years. Only 0.5 per cent made a profit in every single year.

"Sustained profitability remained rare," the report notes. "Among traders active throughout FY22–FY26, only 0.5 per cent were profitable in all five years, while 65.6 per cent incurred losses in every year."

The few who did win consistently won big. Their average profit over the five years worked out to Rs 66.47 lakh, more than four times the Rs 13.79 lakh average loss racked up by the chronic losers. But that comfort applies to roughly one trader in 200. For the rest, staying in the market longer did not improve their returns.

Losing Begets Losing

Sebi’s data shows that traders who lost money in the previous two years were highly likely to lose money again the following year.

"Losses were highly persistent among continuing traders," the study says. "90–92 per cent of traders who had incurred losses in each of the preceding two years incurred losses again in the subsequent year." Across FY24, FY25 and FY26, that repeat-loss rate held at 91.6 per cent, 92.0 per cent and 90.0 per cent respectively, roughly nine out of every 10 repeat losers losing again.

Profits do not compound the same way losses do. Traders who had earned more than Rs 10 lakh during FY22–FY24 had only a 48 per cent chance of making a profit again in FY25–FY26. That probability fell to 35 per cent for traders with prior profits of Rs 1–10 lakh, and to 17 per cent for those with profits under Rs 1 lakh. On the losing side, traders who had lost more than Rs 10 lakh had barely a 4.7 per cent chance of turning a profit the following period, Sebi's data shows.

Why Traders Keep Coming Back

If losses are this persistent, why do people keep trading? The study suggests that the size of the gain or loss, rather than whether they made money, plays a key role in keeping them in the market.

"Continued participation was higher among traders with larger past gains or losses," the report says. "Around 88 per cent of traders who had either earned more than Rs 10 lakh or incurred losses exceeding Rs 10 lakh during FY22–FY24 continued trading in FY25–FY26." Traders whose cumulative outcome, win or lose, was under Rs 1 lakh were far less likely to stick around, with continuation rates of just 53–55 per cent.

In other words, big losses can keep traders in the market just as big gains do. Sebi cautions that this is an association, not a psychological diagnosis, but the pattern is consistent with behavioural finance concepts such as loss aversion and the disposition effect.

The quarterly data adds another layer. Only 15.4 per cent of the 4.02 crore trader-quarter observations were profitable, while 84.6 per cent ended in losses. The losses were also larger than the gains. The median loss in a losing quarter was Rs 10,525, compared with a median gain of Rs 4,366 in a profitable quarter. Among traders who had both winning and losing quarters, 78.7 per cent lost more on average in their losing quarters than they gained in their winning ones.

The Final Loss Is The Biggest One

When traders finally do quit, the numbers suggest it is rarely a planned exit. Across the study period, 86–89 per cent of traders who stopped trading in a given quarter had booked a loss in the quarter immediately before they left.

More striking is the size of that final loss. Among roughly 1.62 million traders who lost money and then stopped, the median loss in their last trading quarter was 2.2 times their average profit across all their earlier profitable quarters. For the worst-hit tenth of this group, the final loss exceeded 30 times their average historical profit. The regulator said, "Traders who discontinued participation were frequently preceded by losses substantially larger than the profits they had earned in earlier profitable quarters."

What Is Left Behind

Sebi also checked what happened to the money afterwards, by tracking equity portfolio holdings of traders who lost in derivatives during FY22–FY24. For 77 per cent of roughly 1.10 crore loss-making traders, the equity holdings they had by the end of FY26 came to less than a quarter of their cumulative derivatives losses. Only 18 per cent had equity portfolios worth more than what they had lost.

The gap was even wider for traders who lost more than Rs 1 crore. Their median equity portfolio in FY26 was just Rs 138. Sebi, however, cautioned that the data covers only listed equity holdings and does not account for other assets, liabilities, income or spending. So, while the numbers suggest that F&O losses did not simply move into equities, they do not provide a complete picture of the traders’ overall wealth.