Most F&O traders lose money; should retail investors be flocking there?
Published by The Federal
Abhishek Kumar's role: Interviewed
Abhishek Kumar explained why F&O losses grow: borrowed exposure, time decay, trading on expiry days, costs and trading habits. He also covered using derivatives to hedge, who should stay cautious, and basic rules for managing risk.
What Abhishek Kumar said
Why do most retail traders lose money in futures and options?
I think the products retail traders favour are stacked against them, and their habits make it worse. Most buy options rather than sell them, and much of the trading happens on or near expiry day, when time decay is fastest. They compete with algorithm-driven desks that have better speed and risk control, pay heavy transaction costs, and tend to take small wins quickly while holding on to losses.
How do leverage and margin calls add to the risk in F&O?
Leverage cuts both ways. With futures, a small move in the index against you can wipe out a large slice of your margin, and an option bought on expiry day can lose its whole premium within hours. If a trade goes wrong, the broker asks for more margin and may sell your position at the worst moment. Options also lose value with time, so you can be right on direction and still lose if the move comes late.
Who has a genuine use for derivatives, and who should stay away?
I am not against derivatives. For someone with a large equity portfolio, they work like insurance, much as a factory owner insures against fire. But trading for quick gains with a small account and no shares to protect is closer to gambling than hedging. I would not suggest F&O for people without an emergency fund or with heavy debts, and it should never be seen as a lottery ticket out of financial trouble.
What basic rules can limit losses for someone who still wants to trade F&O?
Treat it as a small experiment, not a second income. I suggest keeping F&O to no more than 5 to 10 per cent of total assets, never using money meant for goals, EMIs or emergencies, and not trading at all if total assets are under ₹1 lakh. Risk no more than 1 to 2 per cent of F&O capital on one position, avoid same-day or same-week expiries, prefer defined-risk structures over naked option selling, and use derivatives to hedge rather than speculate.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
This video interview on The Federal looks at why most retail traders in futures and options lose money. It cites a SEBI study finding that about 88% of individual equity derivatives traders lost money in FY26, with combined net losses of ₹91,685 crore after costs, and covers what retail investors should understand before trading.
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Most F&O traders lose money; should retail investors be flocking there?