‘90% Lose Money In F&O Trading’: Sebi Chief Shares Advice on Investing Practices, Risks

Sebi Chairperson Madhabi Puri Buch on Monday talked about the risks in investing. She said she is confused and surprised at investor interest in futures and options (F&O) despite 90 per cent of individuals losing money in the segment.

Speaking during the launch of the Investor Risk Reduction Access (IRRA) platform at the BSE in Mumbai, the Sebi chief said there is a need for investors to look at the long term and added that chances of making inflation-beating returns are much brighter through this strategy.

Profits & Losses In Futures and Options Segment

Only 11 per cent of the 45.24 lakh individual traders in the F&O segment made a profit, she said citing a recent research by capital markets regulator Sebi.

As per the research, there was an exponential increase in the F&O segment participation during the pandemic, with the total number of unique individual traders increasing by over 500 per cent from 7.1 lakh in FY19.

“I must admit, I am always a little confused and surprised as to why people continue to do that (bet in F&O) knowing that the odds are not in their favour at all,” Buch said. “There is a 90 per cent chance that the investor will lose money in the F&O segment, but we also know, and the data shows us, that if you take a long-term view of the market, and if you invest with a long-term perspective, you will rarely go wrong,” she added.

As per the Sebi research paper, the average loss booked by 89 per cent of people who lost money on F&Os in FY22 stood at Rs 1.1 lakh, while for the minority which was lucky enough to be in the black, the average profit was Rs 1.5 lakh. More than a third of the investors in the F&O segment were those aged between 20-30, as compared to only 11 per cent in FY19.

Go For Long-Term Investments: Buch

Bush said if the investment calls are for the long term, there is a “very good chance” that an investor will create wealth over a sustained period of time that will exceed the inflation rate in the economy.

She urged investors to move and adopt a long-term and sustainable approach to investments, where there is a high probability of wealth creation rather than losing money on a daily basis in the F&O segment.

New Norms on Upstreaming Of Funds Soon

Buch said Sebi will be coming out with a revised notification on the upstreaming of funds after getting feedback from brokers on the challenges in complying with the norms. She also said that the broking industry and exchanges seem to have agreed on 50 items focused on operational simplification and standard setting, and lauded the stakeholders for working together.

Investor Risk Reduction Access Platform

Sebi had first announced the introduction of IRRA under which a trader can take a call on an open position in case her broker’s system faces an outage – in December 2022. Buch said efforts have been undertaken to achieve a “perfect balance” between requirements in the worst-case scenario to offer the alternative and the costs of creating such a capacity, and hoped that the system will be able to deliver on the promise.

As per an industry official, a trader will get an SMS with a link for downloading the IRRA in case his or her broker faces an outage and will be able to square-off open positions in under two hours.

(With PTI Inputs)