F&O Trading: Time For A ‘Speculation Sahi Nahi Hai’ Campaign

There are several reasons why people may gamble. It could be because of the rush that one gets, combined with the skills they have ( if elevated skills are involved), or it is to make money. There are distinctions between gambling and speculating, but it is quite clear that for millions of Indians, it is more of the former than the latter.

After all, the essential principle of gambling is that you bet a small amount on something that could become bigger — whether in the stock market, crypto or a gaming app. It's turning out that those small bets are running into hundreds of thousands of crores.

The aggregate losses of 11.3 million individual traders exceeded Rs 1.80 lakh crore over the three years between FY22 and FY24. In FY24 alone, individuals incurred about Rs 75,000 crore in net losses. In FY24, nearly 7.3 million individual traders lost money, with an average net loss of Rs 1.2 lakh per person, inclusive of transaction costs.

In contrast, foreign portfolio investors (FPIs) and proprietary traders booked gross trading profits of Rs 28,000 crore and Rs 33,000 crore respectively in FY24, a new study by regulator SEBI found. It’s clear that there are winners here, but it’s the big guys who make the money while the small guys lose it, almost consistently. The sad part of the story is that algo traders, or those who use algorithms powered by high end computers for trading took the larger share of the pie.

“Most of the profits were generated by larger entities that used trading algorithms, with 97 per cent of FPI profits and 96 per cent of proprietary trader profits coming from algorithmic trading,” the SEBI report pointed out. In all, 93% of retail traders in derivatives trading incurred an average loss of Rs 2 lakh per trader during the last three financial years. Daily turnover in the F&O segment often exceeds Rs 500 trillion.

SEBI has now proposed several measures to curb retail participation and speculation. It is likely to get pushed through in an upcoming SEBI board meeting this month, said a Business Standard report. The report said that despite consecutive years of losses, more than three-fourths of the loss-making traders continued their activity in F&O. There are more and more grim and depressing statistics.

It is clear that people are losing their shirts, in derivatives, crypto or mobile gaming apps. It is equally clear that technology, particularly through the mobile device, is accelerating the process with almost no friction. Frictionless transactions are a virtue and something to boast about but only up to a point. It is no longer a virtue if it cannot introduce even a split second pause that might make you think twice before moving your earnings or savings into a speculative instrument. Not that a split second is enough but we have to start somewhere.

For years, India’s mutual fund industry ran a campaign called ‘mutual funds sahi hai’. Whether because of that long running campaign or despite it, retail investor flows into mutual funds have hit record highs of over Rs 20,000 crore a month, mostly through the systematic investment plan route. It is time to now say that ‘speculation sahi nahi hai’, or speculation is bad for your health. You might rightfully think that such public service messages won’t work. But no one thought that ‘mutual funds sahi hai’ would work either.