F&O Trading: Retail Investors Competing Against Algorithms And Are Losing Out, SEBI Survey Reveals
From the total 376 FPIs trading in the F&O segment, 306 traded through algorithms, while 347 out of 626 proprietary traders traded through algorithms, SEBI said.
While individual traders experienced losses in the futures and options trading in the financial year 2023–24, proprietary trades and foreign portfolio investors made a gross profit. However, the majority of the profit made by FPIs and proprietary trades in F&O was earned by algorithm entities.
While the individuals or other category traders including corporates, NRIs and Trusts incurred losses when they used algorithms, they made profits without algorithms, according to a study released by the market regulator, Securities and Exchange Board of India.
Algorithm entities are those entities who have done at least one trade in a year using algorithmic order. While the FPIs made 97% profit using algorithm entities, proprietary traders collected a profit of 96% using these algorithms. However, individuals incurred loss of Rs 27,700 crore when they used algorithms.
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From the total 376 FPIs trading in the F&O segment, 306 traded through algorithms, while 347 out of 626 proprietary traders traded through algorithms.
On the other hand, only 13% of 95.7 lakh individuals made trades through algorithms. These also include clients that experienced forced liquidation by the brokers to square-off intraday positions using algorithmic trading.
Of the total 95.90 lakh traders in the F&O segment only 12.47 lakh used Algo entities for their trading while 83.43 lakh completed their trades without the use of algo entities.
Moving Towards Options Trading
The study by SEBI also revealed that the traders are moving towards options from futures owing to cost of trade and lower capital requirement. In fiscal 2024 the traders in the F&O segment trading in Options rose to 99.3%, whereas the traders in Futures segment fall to 5.9%.
Transaction cost forms bulks of the trading cost in the F&O segment. In financial year 2024 an individual spent close to Rs 26,000 per person as a transaction cost, with brokerage and exchange fees accounting for 71% of the transaction cost.
In Futures, individuals made an average net profit of about Rs 60,000 per person in financial year 2024, compared to loss of Rs 1,28,000 per person in fiscal 2023.
In options, average per person net loss narrowed to about Rs 91,000 in financial year ended 2024 from about Rs 1.03 lakh in fiscal 2023, according to the study.
