India's securities market regulator, Sebi, has spent the past two years attempting to curb excessive speculation in the futures and options (F&O) market, particularly among retail and individual traders. A series of regulatory measures introduced between late 2024 and 2025 aimed to make highly speculative trades more difficult and expensive.
The latest Sebi study shows that the intervention has produced mixed results. Participation in equity derivatives has declined and aggregate losses have fallen, but those who continue to trade are still losing heavily.
The key concern is that the average loss per trader actually increased in FY26, while options continued to account for the overwhelming majority of individual trader losses.
Sebi tightened rules to curb risky F&O trading
Sebi announced several measures in October 2024, which were implemented in phases between November 2024 and April 2025.
The changes included limiting weekly derivative contracts to one index per exchange, increasing the minimum contract size, requiring option buyers to pay premiums upfront and introducing additional margin requirements for short options positions on expiry days. Calendar-spread benefits on expiry day were also withdrawn.
The government separately increased the Securities Transaction Tax, or STT, on equity derivatives. Another hike took effect from April 1, 2026, although that increase falls outside the FY25-FY26 period covered by Sebi's latest study.
The objective was clear: reduce excessive speculation while maintaining the functioning of India's derivatives market.
Fewer individual traders are participating in F&O
The regulatory tightening appears to have had a significant impact on participation.
The number of individual traders in equity derivatives fell from 106.2 lakh in FY25 to around 87.5 lakh in FY26, a decline of approximately 18%. It was the first annual decline in the number of individual F&O traders since FY16.
New entrants dropped even more sharply. Around 20.8 lakh new traders entered the segment in FY26, compared with 34.3 lakh in FY25, marking a decline of nearly 39%.
At the same time, exits increased significantly. Around 45.7 lakh traders exited the segment in FY26, pushing the exit rate to 43%, compared with 27% in the previous financial year.
The decline was particularly sharp among smaller traders. Participation among traders with annual F&O turnover below Rs 1 lakh dropped by around 32%.
Meanwhile, traders with annual turnover between Rs 1 crore and Rs 10 crore, as well as those trading above Rs 10 crore, remained relatively active.
This suggests that Sebi's measures have changed the composition of the market, with smaller and newer traders pulling out while larger and more active participants continue to trade.
Total losses fell, but average losses increased
Individual traders recorded aggregate net losses of Rs 91,685 crore in FY26, down 18% from approximately Rs 1.12 lakh crore in FY25.
The proportion of traders making losses also declined from 90.9% to 87.7%.
However, the improvement needs to be viewed alongside the decline in participation.
With fewer traders active in the market, the overall pool of losses naturally became smaller. For those who continued trading, the situation did not improve significantly.
The average loss per trader increased from around Rs 1.13 lakh in FY25 to Rs 1.17 lakh in FY26.
Over the five financial years from FY22 to FY26, individual traders collectively lost around Rs 3.85 lakh crore in equity derivatives.
Options remain the biggest source of losses
Despite Sebi's regulatory measures, options trading continues to dominate the F&O market.
Around 99% of individual derivatives traders traded options at least once in FY26, while 93.4% traded only options. Just around 1% traded exclusively in futures.
Options accounted for 91.6% of the aggregate net losses incurred by individual traders during FY25 and FY26.
The initial impact of Sebi's measures was visible in trading activity. Average daily premium turnover in index options fell 17.4% immediately after the November 2024 measures.
However, the decline was temporary.
Turnover recovered by 8% between April and September 2025 and then surged another 38% between October 2025 and March 2026. By March 2026, average daily index-options premium turnover had reached Rs 1.18 lakh crore, around 87% higher than the level recorded before the initial regulatory tightening.
The numbers indicate that while regulation initially cooled the market, traders and market participants eventually adapted.
Expiry-day speculation has reduced, but risky trading continues
There has been some improvement in trading patterns.
In FY25, around 70% of index-options turnover occurred on expiry day. This declined to 59% in FY26, indicating a partial reduction in extremely short-term speculative trading.
However, most options activity remains concentrated in contracts close to expiry.
Sebi's study also found that around 97% of individual traders predominantly followed options-buying strategies, while higher trading intensity was associated with greater losses.
Losses also showed strong persistence. Around nine out of 10 traders who had lost money for two consecutive years and continued trading went on to incur losses again.
The findings suggest that experience alone does not necessarily make individual traders more profitable.
Transaction costs are pushing more traders into losses
Transaction costs remain another major issue for individual F&O traders.
In FY26, traders collectively incurred around Rs 24,859 crore in transaction costs. According to Sebi's findings, these costs pushed approximately 4.4 lakh traders who were profitable before costs into net losses.
This highlights how frequent trading can significantly erode returns, even when traders generate profits before brokerage, taxes and other transaction charges.
Has Sebi's F&O experiment worked?
The answer depends on how success is measured.
Sebi has clearly reduced participation in the F&O market. Fewer new traders are entering, more traders are exiting and aggregate losses have declined.
However, the data presents a more worrying picture for those who continue trading.
Nearly nine out of 10 individual traders still lost money in FY26. Average losses per trader increased, options remained responsible for more than 90% of aggregate losses and trading activity recovered strongly after the initial impact of regulatory restrictions.
Sebi's measures appear to have succeeded in reducing the size of the retail F&O market, particularly by pushing smaller traders away from highly speculative activity.
But the underlying behaviour responsible for persistent losses remains largely unchanged.
The market has become smaller, but for many traders still participating, F&O continues to be an expensive and risky game.
