Sebi has spent the past two years trying to cool the frenzy around futures and options (F&O) trading, particularly among individual investors. The regulator introduced a series of measures aimed at curbing excessive speculation, increasing the cost of risky trades and reducing very short-term options activity.
The latest data shows that the measures have had an impact, but perhaps not in the way investors may expect.
The number of individual traders has fallen sharply, and aggregate losses have also declined. But the average loss per trader has increased, while options trading continues to account for the overwhelming majority of losses.
In other words, Sebi has managed to reduce participation. The bigger question is whether it has managed to change the behaviour that is causing individual traders to lose money.
Sebi’s latest study on the profitability of individual traders looks at FY25 and FY26 and specifically examines whether the regulatory measures introduced during this period changed participation, trading behaviour and investor outcomes.
The key measures were announced in October 2024 and rolled out in phases between November 2024 and April 2025.
These included restricting weekly derivative contracts to one index per exchange, increasing the minimum contract size, requiring upfront collection of option premiums from buyers, withdrawing calendar-spread benefits on expiry day and introducing additional Extreme Loss Margin requirements for short options positions on expiry day.
The government had also increased Securities Transaction Tax (STT) on equity derivatives from October 1, 2024.
These steps were aimed at curbing excessive speculation, strengthening market integrity and improving investor protection while allowing derivatives markets to continue functioning.
There has since been another STT increase. From April 1, 2026, STT on futures rose from 0.02% to 0.05%, while STT on option premiums and option exercises increased to 0.15%.
That latest tax increase, however, falls in FY27 and therefore is not part of the period covered by Sebi’s FY25-FY26 study.
The first clear impact of the regulatory tightening is visible in participation.
The number of individual traders in the equity derivatives segment fell from 106.2 lakh in FY25 to about 87.5 lakh in FY26, a decline of around 18%. It was the first annual fall in the trader base since FY16.
More importantly, the pipeline of new traders has weakened sharply. New traders entering the segment fell nearly 39% to 20.8 lakh in FY26 from 34.3 lakh in FY25. At the same time, exits rose to 45.7 lakh, taking the exit rate to 43% from 27% a year earlier.
The decline was concentrated among smaller participants. Traders with annual F&O turnover below Rs 1 lakh fell about 32%, from around 36 lakh to 25 lakh. Meanwhile, participation among traders with turnover of Rs 1 crore to Rs 10 crore and those above Rs 10 crore remained relatively resilient.
This means the F&O market is not simply getting smaller. Its composition is changing, with smaller and newer participants pulling back while more active, higher-turnover traders continue to participate.
Individual traders’ aggregate net losses fell 18% in FY26 to Rs 91,685 crore from Rs 1.12 lakh crore in FY25. The proportion of loss-making traders also declined to 87.7% from 90.9%.
That may initially look like a major improvement.
But the number needs to be read alongside the sharp fall in participation.
Sebi’s study points out that the decline in aggregate losses came with a roughly 20% fall in the number of active traders. The regulator therefore cautions against interpreting the lower loss-maker ratio as clear evidence that trading outcomes have genuinely improved.
In fact, the average loss per trader increased from around Rs 1.13 lakh in FY25 to Rs 1.17 lakh in FY26.
So, while the total loss pool became smaller, largely because fewer people were trading, the financial damage for those who remained active did not fall.
Over FY22 to FY26, individual traders accumulated aggregate net losses of about Rs 3.85 lakh crore in equity derivatives.
If Sebi wanted to reduce risky F&O activity, options remain the biggest challenge.
Around 99% of individual derivatives traders traded options at least once in FY26, while 93.4% traded only options. Just 1% traded only futures.
Options accounted for 91.6% of the aggregate net losses incurred by individual traders during FY25-FY26. The loss rate was also significantly higher among options traders than futures traders.
The latest data also shows that options activity adapted after Sebi’s measures.
Average daily premium turnover in index options fell 17.4% in the immediate period after the November 2024 measures, from Rs 65,935 crore during April-November 2024 to Rs 54,771 crore between December 2024 and March 2025.
But that decline did not last.
Turnover recovered 8% in April-September 2025 and then rose another 38% in October 2025-March 2026. By March 2026, average daily index-options premium turnover had reached Rs 1.18 lakh crore, around 87% above the November 2024 level.
This is perhaps the clearest indication that regulation initially cooled activity, but the market and traders subsequently adapted.
There are some signs of a change in trading patterns, particularly around expiry.
In FY25, 70% of index-options turnover happened on expiry day. That share fell to 59% in FY26. The share of trading taking place within one day of expiry also declined, although most activity remains concentrated in very short-dated contracts.
So, there has been some shift away from expiry-day concentration, but options trading remains heavily focused on short-term positions.
The behavioural findings from Sebi’s study reinforce the concern. Around 97% of individual traders predominantly followed options-buying strategies, while higher trading intensity was associated with higher loss rates.
The study also found a strong persistence of losses. Around nine in 10 traders who had incurred losses in the previous two consecutive years and continued trading went on to incur losses again. Trading experience by itself also did not necessarily translate into better outcomes.
That is important because it suggests the problem is not simply the number of people trading derivatives. It is also how they trade.
The latest data gives Sebi some evidence that its intervention has worked.
There are fewer individual traders. New entrants have fallen sharply. Exits have increased. Aggregate individual losses have declined and some of the most intense expiry-day activity has moderated.
But the picture becomes less convincing when the focus shifts from the overall market to the individual trader.
Nearly nine out of 10 individual traders still lost money in FY26. Average losses per trader increased. Options continued to account for more than 90% of aggregate losses, while index-options activity recovered strongly after its initial post-policy decline.
The study also shows that transaction costs continue to play a meaningful role. Individual traders incurred around Rs 24,859 crore in transaction costs in FY26. These costs pushed around 4.4 lakh traders who were profitable before costs into net losses.
So, has Sebi reduced F&O trading? Yes.
Has it reduced the total amount individual traders lose? Yes, in FY26.
But has it fundamentally changed the way individual traders approach F&O or made the average trader materially safer? The data does not yet provide a clear yes.
The bigger takeaway from Sebi’s latest study is therefore not that its measures failed. It is that regulation has reduced participation, particularly among smaller traders, but the underlying behaviour driving losses remains deeply entrenched. The market may have become smaller, but for many of those still trading, F&O remains a costly game.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)