Summary of this article
Nearly 88 per cent of retail derivative traders lost their money.
Active retail participation in the derivatives segment fell 20 per cent.
Algorithmic institutional desks captured the vast majority of profits.
Nearly nine out of ten retail traders in India's equity derivatives market continued to suffer financial losses in the financial year 2026. Notably these losses came even as overall participation cooled, according to a study released by the Securities and Exchange Board of India (Sebi).
Sebi’s study showed that in FY26 active retail participation declined by about 20 percent, falling to 7.86 million in FY26 from 9.81 million participants in FY25. On the other hand, the entry of new participants in the derivatives space saw a contraction of 40 per cent. Despite a decline in participation, the total aggregate net losses incurred by individual traders stood at Rs 91,685 crore in FY26. However, net losses also showed a decline as they contracted from Rs 1.12 lakh crore in the preceding financial year.
Options Trading Drives Retail Bleed
Despite a drop in aggregate market losses, 87.7 per cent of individual traders continued to incur losses in FY26. The average loss per trader also climbed marginally to approximately Rs 1.17 lakh. Options trading drove the losses for retail investors making up nearly 92 per cent of the aggregate losses incurred by individual investors.
Investor participation in the futures segment witnessed a marginal slowdown from 6.7 per cent to 6.6 per cent. The study showed that retail activity was concentrated in contracts nearing expiration, with nearly 59 per cent of index options turnover occurring in same day expiry contracts. Additionally, 75 per cent of this turnover happened within one day of expiry, and 97 per cent took place within one week of expiry.
Algorithmic Institutional Desks Dominate Profits
Sebi’s findings also showed a divide between individual retail traders and institutional market participants. Even as individual traders bore a gross trading loss of approximately Rs 72,000 crore, institutional and proprietary trading desks generated substantial profits.
Among institutional players, proprietary traders witnessed the highest gross trading profit at roughly Rs 44,000 crore, followed by Foreign Portfolio Investors at Rs 14,000 crore, corporate participants at Rs 8,000 crore, and mutual funds and partnership firms at Rs 3,000 crore each. As much as 99 per cent of the profits generated by both Foreign Portfolio Investors (FPIs) and proprietary desks were captured by algorithmic trading entities.
Smaller Portfolios Bear the Heaviest Burden
The study also found that financial vulnerability was more pronounced among retail traders with smaller asset bases. Nearly 35 per cent of individual traders in the derivatives segment held no equity holdings in their demat accounts, while nearly 78 per cent maintained equity portfolios under Rs 1 lakh.
Sebi’s study showed that these traders bore the brunt of the downturn, bearing nearly 70 per cent of total aggregate losses despite contributing to nearly half of the overall turnover. In FY26 loss rates steadily dropped as portfolio size expanded, falling from 93 per cent for traders with no equity holdings to 58 per cent for those holding portfolios exceeding Rs 10 crore.
Transaction Costs Add to Investor Woes
In addition to direct market losses, individual traders were also battered by transaction costs, incurring nearly Rs 25,000 crore in transaction charges during FY26. Between FY22 and FY26, the cumulative transaction costs paid by retail traders stood at Rs 1 lakh crore.
Although derivatives premium turnover moderated in FY26, total transaction expenses remained broadly unchanged. This was largely driven by the increase in the Securities Transaction Tax (STT) effective October 1, 2024.
Sebi’s study showed that while regulatory adjustments and market shifts have slowed retail participation in the derivatives segment and led to a dip in aggregate losses, the outcomes continue to remain tilted against retail investors. The data indicates that small portfolio traders are absorbing the majority of market losses while institutions reap the rewards.
