Losing game! How India's small F&O traders carried 70% losses while prop desks made Rs 44,000 crore

Retail losses in India's futures and options market were concentrated among small investors in FY26, with traders holding equity portfolios of less than Rs 1 lakh accounting for about 70% of aggregate losses, even as proprietary traders made gross trading profits of around Rs 44,000 crore, according to a new Sebi study.

The market regulator’s study showed that about 35% of individual equity derivatives traders had no equity holdings, while nearly 78% had equity portfolios below Rs 1 lakh. These small-portfolio traders contributed only about half of the turnover, but accounted for nearly 70% of the losses.

The contrast with large and professional market participants was sharp. Proprietary traders recorded the highest gross trading profit at about Rs 44,000 crore in FY26, followed by foreign portfolio investors at Rs 14,000 crore, corporates at Rs 8,000 crore, mutual funds at Rs 3,000 crore and partnership firms or LLPs at Rs 3,000 crore. Sebi said 99% of the profits made by FPIs and proprietary traders came from algo entities.

What does this mean?

The findings point to a derivatives market where the odds are heavily tilted against smaller traders. Retail investors are largely buying short-dated options with limited capital, while institutional and proprietary desks operate with better systems, faster execution, deeper risk controls and algorithmic strategies. In such a setup, the small trader is not playing the same game as the large market participant.

Sebi's data showed that almost 99% profits of FPIs and prop traders came from entities that used algorithmic orders. Analysts say big institutional investors can process price changes, spreads and volatility faster than manual traders.

Retail traders, especially those using small capital, often enter near-expiry options hoping for quick gains. The market structure allows both to trade the same contracts, but the tools available to each side are very different.

This does not mean every large investor wins or every retail trader loses because of manipulation. But the Sebi data shows a clear pattern that the profit pool is concentrated with professional and institutional players, while the loss pool is concentrated with individual traders with small portfolios.

Also Read: Rs 91,685 crore gone! 88% retail investors lost money in F&O trading in FY26 even after strict Sebi rules

Overall, individual traders posted aggregate net losses of about Rs 91,685 crore in FY26, compared with about Rs 1.12 lakh crore in FY25. The fall in total losses came as retail participation cooled. Active individual traders declined about 20% to 78.6 lakh from 98.1 lakh, while new entrants declined about 40%.

Still, the loss rate remained severe. Sebi said 87.7% of individual traders incurred losses in FY26. Average loss per trader rose marginally to about Rs 1.17 lakh during the year.

Options trading was the main source of damage. Around 92% of aggregate losses incurred by individuals came from options trading. Nearly 97% of traders mainly followed option-buying strategies, while only around 2% were classified as mainly options sellers. Options sellers were the only strategy group to record positive median returns on capital employed during FY26.

The concentration near expiry also remained high. About 59% of index options turnover came from contracts expiring on the same day, while around 75% came from contracts expiring within one day. About 97% of index options turnover was in contracts expiring within one week.

These contracts are popular with small traders because they require less capital and can move sharply. But they also lose value quickly and leave little room for error. For a trader with a small portfolio, repeated near-expiry bets can quickly turn into large losses relative to capital.

Sebi also found that loss rates fell as equity portfolio size increased. Traders with no equity holdings had a loss rate of 93%, while those with equity portfolios of more than Rs 10 crore had a loss rate of 58%.

The study said younger investors, lower-income groups and traders with small equity portfolios showed higher trading intensity relative to their financial resources. It also found that experience did not materially improve outcomes. Traders with several consecutive years of derivatives participation continued to report high loss rates.

Among traders who incurred losses in two straight years and continued trading, around 90% lost money again in the following year. Quarterly data also showed that about 85% of trader-quarter observations were loss-making, while only about 15% were profitable.

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