Futures and options (F&O) trading suits investors with good market knowledge, sufficient risk capital, a tested strategy and strong discipline.
Securities and Exchange Board of India (Sebi) data show that 87.7 per cent of individual equity-derivatives traders incurred losses in financial year 2025-2026 (FY26), compared with about 91 per cent in 2024-2025 (FY25).
Aggregate net losses fell about 18 per cent to Rs 91,685 crore from a revised Rs 1.12 trillion in FY25.
Despite the decline, losses remain high in absolute terms.
Derivatives can expose traders to many times their underlying capital.
"Relatively small market moves can translate into disproportionately large losses," says Vinit Bolinjkar, head of research, Ventura.
Many retail traders overtrade.
About 59 per cent of index-options turnover in FY26 was in contracts expiring the same day, 75 per cent within one day and 97 per cent within one week.
"They take positions based on short-term market moves rather than a defined strategy," says Mehul Kothari, deputy vice president, Anand Rathi Share and Stock Brokers.
Bolinjkar adds that highly short-term trading makes outcomes very sensitive to timing and volatility.
Fear of missing out, overconfidence and revenge trading worsen outcomes.
Individual traders incurred about Rs 25,000 crore of transaction costs in FY26.
"Transaction costs materially widen the difference between gross trading outcomes and realised net returns for high-turnover strategies," says Bolinjkar.
Young, low-income traders and those with small portfolios are more vulnerable.
"They tend to take higher exposure relative to their capital and trade more frequently," says Kothari.
Investors outside the top 30 cities represented roughly two-thirds of individual derivatives traders and accounted for about 58 per cent of losses.
Location alone does not explain poor outcomes; it may reflect differences in experience, financial sophistication and portfolio size.
Even when the market moves in their favour, an option may not gain enough to cover the premium paid.
"An option buyer can lose value when the magnitude of the underlying move is insufficient," says Bolinjkar.
Retail option buyers also face sophisticated algorithmic traders.
"They compete against proprietary and institutional desks with superior execution technology, quantitative pricing models, lower latency and portfolio-level hedging capabilities," says Bolinjkar.
Futures and options (F&O) trading suits investors with good market knowledge, sufficient risk capital, a tested strategy and strong discipline.
Traders must understand derivatives and risk controls.
"They should understand leverage, volatility and position sizing," says Kothari.
They should also understand margin requirements, liquidity and expiry dynamics, and maintain stop-loss frameworks.
They should absorb losses without changing strategy and use risk capital whose loss would not impair their financial objectives.
Adequate capital reduces the risk of excessive leverage or forced liquidation.
Traders also need experience across different market conditions.
Traders should set a maximum loss limit before entering a trade and never exceed it.
"They should avoid excessive leverage and concentrated exposure," says Shilpa Rout, senior analyst -- derivatives, PL Capital.
Every trade should have a stop-loss.
"Position sizes should be kept small.
"Avoid risking more than 1 to 2 per cent of total capital on a single trade," says Harsh Vira, chief financial planner and founder, FinPro Wealth.
Leverage should stay low.
Vira adds that overall exposure should also remain limited so that a spate of bad trades does not damage long-term finances.
Never risk money needed for essential expenses or financial goals.
Also avoid averaging down losing positions and excessive trading to recover losses quickly.
"Investors should avoid blindly following social-media tips or 'sure-shot' calls," says Rout.
Repeated losses should prompt investors to consider stopping F&O trading.
"Dipping into savings, borrowing to meet losses or margins, and feeling compelled to trade to recover losses are clear warning signs," says Rout.
At that point, investors should move to simpler, unleveraged products better suited to their risk tolerance and financial goals, such as mutual funds or diversified equity investing.
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Feature Presentation: Ashish Narsale/Rediff