Why Most Individual Traders Lose in Equity Derivatives: What SEBI’s FY25–FY26 Study Reveals

The Indian equity derivatives market has become increasingly popular among individual traders. Options, in particular, have attracted millions of participants, many of whom trade frequently and with relatively small amounts of capital.

But a new SEBI study on the Trading Behaviour of Individual Traders in the Equity Derivatives Segment (FY25–FY26) reveals a striking pattern: the challenge for individual traders may not simply be predicting where markets will move. Their trading behaviour itself appears closely associated with poor outcomes.

The study examines trading strategies, capital employed, turnover, trading frequency, experience, persistence, cash-market participation and subsequent equity holdings. Its findings paint a consistent picture of high loss rates, intense trading and a significant asymmetry between gains and losses.

Importantly, the study identifies associations and behavioural patterns, not causes. It does not claim that a particular behaviour directly causes a particular loss.

The headline number: 97% were predominantly options buyers

Individual participation in equity derivatives remained overwhelmingly concentrated in options buying.

In FY26, approximately 93% of traders were classified as “Only Options Buyers”, while another 4% were “Majorly Options Buyers”. Together, these groups represented about 97% of individual traders in the analysed sample. Less than 1% were classified as Majorly Futures Traders, while about 2% were Majorly Options Sellers.

The outcome for options buyers was sobering.

About 90% of Only Options Buyers were loss-makers in FY26. Majorly Options Buyers also had a high loss rate of about 75%.

At first glance, options selling appears to tell a different story. Only about 44% of Majorly Options Sellers were loss-makers in FY26—the lowest loss incidence among the major trading categories.

But there is an important catch.

When options sellers lost, they tended to lose much more.

The average loss per loss-making Majorly Options Seller was approximately ₹51.7 lakh in FY26, compared with ₹4.6 lakh for Majorly Options Buyers and ₹1.3 lakh for Only Options Buyers.

This is one of the study’s most important observations: a lower probability of losing does not necessarily mean lower risk.

Options selling displayed a form of risk asymmetry—fewer traders lost, but the losses among those who did could be extremely large.

Small capital does not mean small risk

Another important finding concerns the amount of capital traders put into derivatives.

About 77% of traders used less than ₹1 lakh of peak margin. Yet this large group accounted for only about 8% of turnover and 14% of total losses.

The remaining 23% of traders, who deployed more than ₹1 lakh, generated approximately 92% of turnover and 86% of losses.

There is an interesting distinction here.

Smaller-capital traders were more likely to lose. Around 90% of traders using less than ₹1 lakh incurred losses, compared with about 81% among traders using more than ₹1 lakh.

However, when higher-capital traders lost, the losses were dramatically larger. The average loss per loss-making trader was approximately ₹0.44 lakh for the below-₹1 lakh group versus ₹9.19 lakh for traders using more than ₹1 lakh.

In other words, the data shows two different dimensions of risk:

Lower capital → higher frequency of losses.

Higher capital → larger losses when they occur.

That distinction is easy to miss when looking only at the percentage of traders who lose.

More trading was associated with worse outcomes

Perhaps the strongest behavioural pattern in the study is the relationship between trading intensity and losses.

The study found that traders with higher turnover and greater trading intensity generally had higher loss rates and larger average losses. This relationship was particularly visible when high turnover was combined with relatively low capital or small equity portfolios.

The numbers become particularly striking when trading activity is compared with the trader’s underlying equity portfolio.

Traders below 30 generated derivatives turnover of roughly 93 times their equity portfolio, compared with around 20 times for traders above 50.

Similarly, traders with annual income below ₹5 lakh generated turnover roughly 75 times their equity portfolio, compared with about 14 times among those earning more than ₹1 crore.

But the biggest difference appeared when traders were grouped by portfolio size.

Small-portfolio traders generated derivatives turnover equivalent to approximately 1,665 times their portfolio value, while large-portfolio traders generated turnover of about 8 times their portfolio value.

The smallest-portfolio group also had a loss-maker rate of about 89.7%, compared with 62.9% among large-portfolio traders.

This does not establish that high turnover causes losses. But it does show a strong and recurring association: the more intensely traders operated relative to their available capital or portfolio, the poorer their observed outcomes tended to be.

Experience did not necessarily make traders better

One might expect experience to improve performance.

The study’s findings challenge that assumption.

The proportion of loss-makers increased from roughly 91% among first-year traders to more than 95% among traders with four or more consecutive years of participation.

So simply staying in the derivatives market longer was not associated with better outcomes.

The pattern becomes even more striking among the most active traders. Traders who were active for more than 100 days represented about 42% of traders, but accounted for approximately 94% of turnover and 87% of total losses.

The message is not that experience has no value. Rather, the data suggests that experience combined with continued high-intensity trading did not translate into improved outcomes.

The mathematics of winning and losing quarters

The study also looks at trading outcomes quarter by quarter.

Out of approximately 4.02 crore PAN-quarter observations, only 15.4% were profitable. The remaining 84.6% were loss-making.

And losses were not simply more frequent—they were also larger.

The median profit in a profitable quarter was ₹4,366, while the median loss in a loss-making quarter was ₹10,525.

That means the typical quarterly loss was more than twice the typical quarterly gain.

The pattern persisted at the individual trader level.

Among approximately 35.5 lakh traders who experienced both profitable and loss-making quarters, 78.7% had a higher average loss per losing quarter than their average gain per profitable quarter.

This is crucial because a trader does not necessarily need to lose money on every trade to end up with a poor overall result.

If losses occur more frequently and are larger than gains, even occasional successful trades may not compensate for them.

Losses often preceded an exit—but big losses did not necessarily end participation

The relationship between losses and trader behaviour after those losses is also revealing.

Across the study period, between 28% and 40% of traders active in one quarter did not trade in the following quarter.

The highest quarterly exit rate occurred in FY25Q4, when 40% of traders active in the preceding quarter did not trade in the following quarter.

Recent losses were particularly common among those who subsequently stopped trading.

Across quarters, 86% to 89% of traders who stopped trading had recorded a loss in the immediately preceding quarter. For example, in FY26Q4, 10.6 lakh of the 12.3 lakh traders who stopped trading had lost money in the preceding quarter.

Yet large cumulative losses did not necessarily lead to permanent departure from derivatives.

The study found that traders who had accumulated losses exceeding ₹10 lakh in FY22–FY24 had a continuation rate of about 88%.

This creates an intriguing behavioural pattern: a recent loss was strongly associated with a temporary exit, but substantial historical losses were also associated with continued participation.

Profits were less persistent than losses

Persistence is another area where the findings stand out.

Only about 57% of the FY25 cohort continued trading in FY26, below the long-term average of approximately 65%. Meanwhile, 43% stopped trading.

Among traders who remained active, losses showed considerable persistence.

Around 90–92% of traders who had recorded losses in each of the preceding two years incurred losses again in the subsequent year.

Meanwhile, sustained profitability was extremely rare. Among traders active throughout FY22–FY26, only 0.5% were profitable in all five years, while 65.6% incurred losses in every year.

The study also found an asymmetric relationship between past outcomes and future outcomes. Traders with substantial past losses were predominantly followed by further losses, whereas traders with substantial past profits had a materially higher share of subsequent profit-makers.

Derivatives are increasingly becoming a standalone activity

The Indian derivatives market is also changing in terms of who participates and how.

Historically, most investors entered derivatives after or alongside participation in the cash market. Across the FY22–FY26 cohort, about 60% had traded in cash before entering derivatives, while 37% started participating in both markets in the same year.

But derivatives-only participation has grown substantially.

The number of investors participating exclusively in derivatives increased from fewer than 1 lakh before COVID-19 to more than 18 lakh in FY26. In FY26, approximately 18.6 lakh traders had no cash-market turnover.

The study also observed better trading outcomes among traders with greater cash-market participation relative to derivatives activity, while traders whose activity was concentrated predominantly in derivatives had higher loss rates and larger average losses.

Again, this is an observed association, not proof that participation in the cash market itself causes better derivatives outcomes.

What happens to wealth after derivatives losses?

Perhaps one of the most striking findings comes from looking beyond derivatives trading itself.

Among approximately 1.10 crore traders who incurred EDS losses during FY22–FY24, 77% had an FY26 equity portfolio worth less than 25% of their cumulative derivatives losses. Only 18% had equity portfolios exceeding their cumulative EDS losses.

For traders with cumulative derivatives losses exceeding ₹1 crore, the median FY26 equity portfolio was just ₹138.

The contrast was stark for traders with substantial historical derivatives profits. Those who earned more than ₹1 crore during FY22–FY24 had a median FY26 equity portfolio of approximately ₹1.08 crore.

The report is careful here: these findings show a strong association between historical derivatives outcomes and subsequent equity holdings, but they do not establish causation and do not measure total household wealth, since other financial assets and liabilities are not captured.

What the study ultimately tells us

Taken together, the findings point toward a broader lesson.

The difficulty faced by individual derivatives traders is not confined to whether they correctly predict the next market move. Their choice of strategy, trading intensity, turnover relative to capital, frequency of participation and persistence after losses all form part of the picture.

The study’s evidence consistently highlights several patterns:

• Options buying dominates individual participation.

• Losses are widespread among options buyers.

• Options selling has fewer loss-makers but potentially much larger losses when losses occur.

• Low-capital traders lose more frequently, while high-capital traders can lose much larger amounts.

• Higher turnover and trading intensity are associated with poorer outcomes.

• More years of participation do not necessarily translate into better results.

• Losses occur far more frequently than profitable quarters.

• Typical quarterly losses are more than twice typical quarterly gains.

• Recent losses are strongly associated with temporary exits.

• Loss-making behaviour can persist among traders who remain active.

• Derivatives-only participation has grown considerably.

• Historical derivatives losses are associated with relatively small subsequent equity portfolios.

Perhaps the most important takeaway is that activity itself should not be confused with progress.

Trading more frequently, generating more turnover or remaining in the market for longer does not, according to the study’s descriptive evidence, automatically improve outcomes. In several dimensions, the opposite pattern was observed.

For individual investors, the findings offer a useful reminder that derivatives are not simply a faster version of equity investing. The combination of leverage, frequent trading, short-duration positions and asymmetric payoffs can produce outcomes that differ sharply from those of long-term investing.

And for policymakers and investor-awareness efforts, the study provides something more valuable than another headline loss figure: it begins to show how trading behaviour is connected with those losses.

The central question, therefore, may not be simply “Can individual traders make money in derivatives?”

It may be:

“What happens to trading outcomes when individuals trade too frequently, too intensely, or with too much exposure relative to their available capital?”

SEBI’s FY25–FY26 study suggests that this behavioural dimension deserves just as much attention as the market itself.

Source: SEBI, “Trading Behaviour of Individual Traders in the Equity Derivatives Segment (FY25–FY26),” August 2026. The study notes that its findings are primarily descriptive and associational and should not be interpreted as establishing causal relationships. Results based on the 5,050-trader margin-utilisation sample are indicative and should be interpreted with caution.

Source: SEBI report Aug 2026