MUMBAI - At a recent event for investment professionals in Mumbai, concerns were raised about the surge in derivative trading on the National Stock Exchange (NSE) of India. Siddhartha Bhaiya, managing director at Aequitas Investment Consultancy Pvt Ltd, drew a stark comparison between the NSE's burgeoning derivative market and gambling practices in Las Vegas, highlighting the risks and heavy losses faced by retail investors in India.
The Securities and Exchange Board of India (Sebi) conducted research that revealed a significant uptick in individual equity Futures & Options (F&O) traders on the NSE. The numbers soared from 710,000 in the financial year 2019 to 4.52 million by the financial year 2022. This dramatic increase has been accompanied by a worrying trend: approximately nine out of ten equity F&O traders have incurred losses during this period. The average loss per trader has escalated to Rs 50,000 in FY22.
Bhaiya's comments underscore a growing concern about the potential negative impacts of derivatives on retail investors, who may not fully understand the complexities and inherent risks of these financial instruments. The findings from Sebi's research serve as a cautionary tale for traders and regulators alike, emphasizing the need for greater awareness and possibly more robust regulatory measures to protect investors from significant financial harm.
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