Sebi Chief Questions Investor Fervor for Futures & Options Despite High Losses

Sebi chairperson Madhabi Puri Buch has openly expressed her bewilderment and astonishment at the persistent interest investors exhibit in the Futures and Options (F&O) market. Her reaction stems from the stark statistic that a whopping 90 percent of individual traders in this segment reportedly incur financial losses.

Understanding the Preferential Shift

During an event at the Bombay Stock Exchange for the launch of the Investor Risk Reduction Access (IRRA) platform, Buch emphasized the unusual rise in F&O participation. She cited research indicating that only 11 percent of the 45.24 lakh individual traders in the F&O market turned a profit.

The research highlighted a dramatic leap in F&O engagement during the COVID-19 pandemic, with the count of unique individual traders growing by more than 500 percent from 7.1 lakh in the fiscal year 2019 to the present figures.

The Long-term Investment Perspective

Buch finds the attraction to F&O puzzling, especially considering the unfavorable odds stacked against the investors in this high-stakes game. She advocates for a shift towards long-term investment strategies which historically have offered more substantial inflation-beating returns, arguing that such an approach seldom leads to financial missteps.

The chairperson further urged individuals to pivot towards sustainable, long-term investment choices to better their odds at wealth accumulation, rather than facing the repeated risks of daily money loss in the F&O sector.

A Deeper Look into the Numbers

Diving deeper into the specifics, the Sebi research paper unveiled that 89 percent of those losing money in F&Os during the fiscal year 2022 faced an average loss of Rs 1.1 lakh each, whereas the minority who made profits netted an average of Rs 1.5 lakh.

Demographically, over one-third of the investors in F&O are aged between 20-30, marking a significant increase from just 11 percent three years prior.

Future Endeavors and Developments

In other developments, Buch announced that Sebi is working on a revised notification dealing with the 'upstreaming of funds' following feedback about compliance challenges from brokers. She highlighted ongoing cooperation within the industry to achieve operational simplification and standard setting.

The IRRA system introduced in December 2022 aims to strike a fine balance between the necessary measures in worst-case scenarios and the costs of such measures. This system offers traders an alternative way to manage open positions during broker outages, expected to be operational within two hours upon receiving a notification.

Sebi, Futures, Options