F&O trading: ‘Participation of retail investors rises on quick profit potential’

New Delhi: With growing participation of retail traders in the futures & options (F&O) trading, experts on Sunday said the prospects of quick profits and speculative nature of the instrument has attracted investors to this segment.

They suggested investors to approach F&O trading with thorough knowledge and careful risk management.

Finance minister Nirmala Sitharaman and chief economic advisor V Anantha Nageswaran have recently flagged the growing risk of F&O trading for retail investors. In November 2023, Sebi chief Madhabi Puri Buch also cautioned investors against heavy bets on F&O.

The caution was likely aimed at encouraging a more informed and prudent approach to trading in these products, helping to safeguard investors’ financial well-being while allowing them to take advantage of market opportunities. Despite this, F&O trading continues to grow in popularity, driven by the potential for profit and the rising trading volumes.

The segment’s popularity is evident from its massive growth, with the monthly turnover in the F&O segment reaching Rs 8,740 lakh crore in March 2024, compared to Rs 217 lakh crore in March 2019. At the same time, the average daily turnover in the equity cash segment was Rs 1 lakh crore, while the F&O segment saw an average daily turnover of about Rs 330 lakh crore, Vinnaayak Mehta, Founder and Director of wealth management firm The Infinity Group, said.

He, further said that Futures and Options trading is largely being utilized as a speculative tool for quick profits in the stock market.

However, the reality is that most retail investors are losing money.