Comparative Study of Growth in Equity Derivatives Segment vis-à-vis Cash Market After Recent Measures

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SEBI Report: Comparative Study of Equity Derivatives vs Cash Market | FY 2024-25
SEBI Official Report • FY 2024-25

Comparative Study of Growth in Equity Derivatives Segment vis-à-vis Cash Market After Recent Measures

Comprehensive analysis of trading activity, regulatory impact, and individual trader profitability in India’s derivatives ecosystem

Analysis Period: Dec 2024 – May 2025
Sample Size: 96 Lakh Traders
Coverage: Top 13 Stock Brokers
91%
Individual traders with net losses
-5%
EDS turnover YoY decline
4.3x
India’s global derivatives leadership

A. Executive Summary

Key findings from the comprehensive study of derivatives market performance after regulatory measures

1

Derivatives Market Foundation and Regulatory Context

Market Functions: Derivatives markets assist in better price discovery, improve market liquidity and allow investors to manage their risks better. However, with an explosion in index options trading on expiry day over time, concerns arose around investor protection & systemic stability.

Regulatory Response: Accordingly, measures were introduced to strengthen equity index derivatives framework, as mentioned in para 5 of the report.

2

Trading Activity Analysis (December 2024 – May 2025)

Trading activity in Equity Derivatives Segment (EDS) after regulatory measures – both across all investors, and for individuals alone, has been analyzed. Key findings are as follows:

a. Index Options Turnover

Performance Analysis
Year-on-Year Changes
-9% Premium Terms
-29% Notional Terms
vs 2 Years Ago
+14% Premium Terms
+42% Notional Terms

b. Individual Trader Turnover

Premium Terms in EDS
Performance Changes
-11% Year-on-Year
+36% vs 2 Years Ago

c. Unique Individual Investors

Trading in EDS
Investor Count Changes
-20% vs Previous Year
+24% vs 2 Years Ago

d. Global EDS Leadership

International Comparison
Top
Global Market Leader

India continues to see relatively very high level of trading in EDS, compared to other markets, particularly in index options.

3

SEBI Regulatory Framework Enhancement (May 29, 2025)

SEBI vide circular dated May 29, 2025, introduced certain measures to strengthen risk metrics in derivatives with following key objectives:

a. Enhanced Risk Monitoring

Better monitoring and disclosure of derivatives risks

b. F&O Ban Reduction

Reducing instances of spurious F&O ban periods in single stocks

c. Concentration Risk Oversight

Better oversight over the possibility of concentration or manipulation risk in index options

4

Critical Finding: Individual Trader Losses in EDS

Alarming Loss Pattern Identified

Analysis of profit and loss of individual traders in EDS suggests that at aggregate level, nearly 91% of individual traders incurred net loss in EDS in FY 2025 (similar trend was observed in FY 2024).

91%

Traders with Net Losses

Consistent pattern across FY 2024 and FY 2025

Persistent trend

Key Implications

Systemic challenge in retail derivatives trading
Urgent need for enhanced investor protection
Critical importance of investor education

B. Detailed Note on Trend in Trading Activity

Comprehensive analysis of market trends following regulatory measures implementation

5

SEBI Regulatory Measures Timeline (October 1, 2024)

SEBI introduced comprehensive measures to strengthen equity index derivatives framework through a seven-phase implementation strategy:

Sr. No. Measure Effective From Impact
i. Rationalization of Weekly Index derivatives products November 20, 2024 Reduced market fragmentation
ii. Increase in tail risk coverage on the day of options expiry November 20, 2024 Enhanced risk management
iii. Increased contract size for index derivatives* January 02, 2025 Reduced speculative trading
iv. Rationalization of Monthly index derivative products** January 2025 Streamlined expiry schedule
v. Upfront collection of Option Premium from buyers February 10, 2025 Improved settlement risk
vi. Removal of Calendar spread treatment on the Expiry Day February 10, 2025 Eliminated arbitrage opportunities
vii. Intraday monitoring of position limits*** April 01, 2025 Real-time risk monitoring

* Minimum contract sizes on NSE and BSE were increased w.e.f. Jan 02, 2025 and Jan 10, 2025 respectively.

** All index derivatives products for each exchange to expire on single day of the week i.e. BSE on Tuesday, NSE on Thursday and MSE on Friday.

*** Vide circular dated March 28, 2025, breach of position limits intraday for index derivatives were exempted from any penalty, until further directions.

6

Analysis Methodology & Scope

To gauge the trading activity in EDS after these measures were introduced, activity from December 2024 to May 2025 (six months) is analyzed. For perspective and comparison, trading activity over similar periods across earlier years is also provided.

Important Note: Any causality can be difficult to establish, given that multiple variables and factors may be behind any variation in volumes.

7

Long-term Growth Comparison: EDS vs Cash Market (FY 2020-2025)

During the period FY 2020 to FY 2025, the turnover growth in overall EDS (options in premium terms) and the Cash Market (CM) are comparable:

25%
Cash Market CAGR
23%
EDS CAGR

Table 2: Long-term trend in turnover for EDS and CM

Segment FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 5Y CAGR
EDS 92,724 1,21,882 1,47,039 1,62,728 1,97,649 2,63,832 23%
CM 39,148 66,007 72,368 57,666 87,978 1,20,782 25%

Average Daily Turnover (₹Cr.)

8

Segment-wise Growth Analysis: Options Leading the Charge

During these five years, within EDS, options segment grew at the fastest rate with remarkable growth in both premium and notional terms:

72%
Index Options Premium CAGR
101%
Index Options Notional CAGR

Table 3: Long-term segment wise trend in turnover for EDS

Segment FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 5Y CAGR
Index Options – Premium 4,359 10,569 23,601 43,947 58,076 64,881 72%
Stock Options – Premium 924 2,320 4,201 3,754 5,573 8,114 54%
Index Options – Notional 12,59,389 25,04,490 67,55,624 1,51,05,539 3,51,98,073 4,18,23,244 101%
Stock Options – Notional 49,777 1,05,430 2,27,153 2,37,993 3,73,398 5,38,972 61%

Average Daily Turnover (₹Cr.)

9

Individual Investor Participation: Dramatic Shift to Index Options

During the period FY 2020 to FY 2025, turnover of individuals in EDS grew at 19% CAGR. Most notable is the dramatic shift towards index options:

FY 2019-20
₹5
out of every ₹100 went to index options
FY 2024-25
₹41
out of every ₹100 went to index options

Table 4: Long-term trend in turnover in EDS for individuals

Segment FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 5Y CAGR
Overall EDS 25,359 36,045 35,250 40,735 48,860 61,534 19%
Index Options 1,256 3,326 7,954 15,423 20,796 25,324 82%
Stock Options 297 749 1,384 1,171 1,655 2,142 48%

Average daily traded value by individuals (₹Cr.)

10

Recent Market Performance: Post-Regulatory Impact Analysis

During December 2024 to May 2025, following the implementation of regulatory measures, the market showed mixed performance compared to historical periods:

EDS Performance

-5%
vs Previous Year
+46%
vs Two Years Ago

Cash Market Performance

-11%
vs Previous Year
+91%
vs Two Years Ago

Table 5: Recent trend in turnover of EDS and CM (Market wide)

Segment Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
EDS 2,43,094 2,55,206 1,66,730 -5% +46%
CM 1,05,544 1,18,190 55,366 -11% +91%

Average daily traded value (₹Cr.)

11

Index Options Performance: Regulatory Impact Assessment

Within EDS, during the last 6 months, index options showed clear impact from regulatory measures:

Premium Terms

-9%
vs Previous Year
+14%
vs Two Years Ago

Notional Terms

-29%
vs Previous Year
+42%
vs Two Years Ago

Table 6: Recent trend in turnover of index options segment

Index Options Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
Premium (₹Cr.) 61,533 67,467 54,086 -9% +14%
Notional (₹Cr.) 3,18,50,658 4,48,42,314 2,24,69,205 -29% +42%

Average daily traded value

12

Individual Investor Activity: Regulatory Cooling Effect

During December 2024 to May 2025, individual investors showed measured response to regulatory changes:

-11%
Trading Volume vs Previous Year
+36%
Trading Volume vs Two Years Ago

Table 7: Recent trend in turnover for EDS (Individual investors)

Period Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
EDS – Individual (₹Cr.) 56,042 62,722 41,272 -11% +36%

Average daily traded value

13

Trader Count Analysis: Participation Patterns by Investment Size

During the last 6 months, the number of unique traders dealing in EDS witnessed -20% degrowth compared to previous year and +24% growth compared to two years back. Most significant impact was on smaller traders:

Key Finding

Traders with total turnover less than ₹1 lakh witnessed the highest degrowth compared to previous year, but also showed the highest increase compared to two years ago.

Table 8: Market wide breakup of unique traders across various buckets (EDS)

Trader Bucket Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
< ₹10,000 10,36,412 14,82,603 6,59,746 -30% +57%
₹10,000 – ₹1 Lakh 12,47,137 16,01,235 9,35,569 -22% +33%
₹1 Lakh – ₹10 Lakh 16,61,303 21,71,763 14,94,229 -24% +11%
₹10 Lakh – ₹1 Cr 17,08,985 19,84,051 15,05,975 -14% +13%
₹1 Cr – ₹10 Cr 8,98,435 9,35,833 7,10,580 -4% +26%
> ₹10 Cr 2,22,202 2,49,799 1,78,891 -11% +24%
Total 67,74,474 84,25,284 54,84,990 -20% +24%

Investor count with traded value in EDS

14

Average Trading Values: Stability Across Investment Buckets

For traders in various investment buckets, the average traded value across BSE and NSE remained relatively stable, indicating consistent trading patterns within each segment:

Table 9: Market wide breakup of average traded value in EDS

Trader Bucket Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
< ₹10,000 3,074 2,855 3,232 +8% -5%
₹10,000 – ₹1 Lakh 41,809 41,915 42,929 0% -3%
₹1 Lakh – ₹10 Lakh 4,04,799 4,01,820 4,13,945 +1% -2%
₹10 Lakh – ₹1 Cr 37,07,977 35,94,684 36,03,921 +3% +3%
₹1 Cr – ₹10 Cr 3,20,09,410 3,19,31,540 3,19,87,900 0% 0%
> ₹10 Cr 2,39,22,47,000 2,38,48,05,000 2,10,03,62,000 0% +14%

Average traded value in EDS (₹)

15

Individual Trader Count: Participation Decline

The count of individual traders in EDS showed similar patterns to overall market participation:

-20%
vs Previous Year
+24%
vs Two Years Ago

Table 10: Recent trend in unique individual traders in EDS

Metric Dec 24- May 25 (A) Dec 23- May 24 (B) Dec 22- May 23 (C) A vs B A vs C
Individual Traders in EDS 67,55,579 84,06,551 54,68,988 -20% +24%

Count of individual investors

16

Global Market Leadership: India’s Continued Dominance

Despite regulatory measures affecting contract size comparisons, India maintains its global leadership position in derivatives trading:

Global #1 Position
World Federation of Exchanges Data (March 2025)
4.3x
Higher than second-ranked exchange

Note: Minimum contract size revisions (NSE: Jan 2, 2025; BSE: Jan 10, 2025; Monthly products: Feb 2025) make direct contract count comparisons with periods not feasible. However, India’s market leadership is intact with average traded contracts 4.3 times higher than the second-ranked global exchange.

C. Analysis of Profit and Loss of Individual Traders in FY 2024-25

17

Study Methodology and Coverage

A comprehensive study was undertaken on profits and losses made by individual traders in EDS for FY 2024-25, representing the most extensive analysis of retail investor outcomes in India’s derivatives market.

13
Top Stock Brokers
96L
Unique Traders Analyzed
90%
Market Coverage

Study Scope: Combined client base of around 96 lakh unique traders in EDS as against around 107 lakh unique traders across the market, ensuring representation of retail investor behavior.

18

Critical Findings: The Retail Trading Crisis

Alarming Escalation in Losses

Net losses of individual traders widened by 41% to ₹1,05,603 crore in FY25 from ₹74,812 crore in FY24, while the percentage of loss-making traders remained persistently high at 91%.

₹1,05,603 Cr
Total Net Losses FY25
+41% from FY24
91%
Traders Making Losses
Unchanged from FY24
₹1,10,069
Average Loss per Trader
27% worse than FY24

Historical Trend Analysis (FY22-FY25)

Year Net Profit (₹Crore) No. of traders (lakhs) Loss makers (%) Average per person P&L (₹) Y-O-Y Change
FY22 -40,824 42.7 90.2% -95,517 Baseline
FY23 -65,747 58.4 91.7% -1,12,677 61% ↗
FY24 -74,812 86.3 91.1% -86,728 14% ↗
FY25 -1,05,603 96.0 91.0% -1,10,069 41% ↗
Consistent Loss Pattern

Over 4 years, 91% of traders consistently lose money, indicating systematic issues rather than conditions.

Exponential Growth in Losses

Total losses have grown 2.6x from FY22 to FY25, far outpacing the growth in participant numbers.

19

FY 2024-25 Quarterly Deep Dive: Regulatory Impact Assessment

Regulatory Measures Implementation

Derivatives measures were rolled out from November 20, 2024 onwards, providing a natural experiment to assess regulatory effectiveness.

Trader Participation Decline

Q1 FY25
61.4L
Pre-Regulation
Q4 FY25
42.7L
Post-Regulation

30% Reduction: Number of unique individual traders declined from 61.4 lacs to 42.7 lacs, indicating successful filtering of participants.

Quarterly Performance Breakdown

Quarter Net Profit (₹Crore) No of traders (lakhs) Loss makers (%) Average per person P&L (₹) Regulatory Status
FY25:Q1 -21,255 61.4 84.5% -34,606 Pre-Measures
FY25:Q2 -25,942 59.2 86.3% -43,847 Transition
FY25:Q3 -33,661 53.5 88.5% -62,975 Peak Crisis
FY25:Q4 -24,745 42.7 86.4% -57,920 Post-Measures
Q3 to Q4 Change -26% ↓ -20% ↓ -2.1 pp ↓ -8% ↓ Effective
Regulatory Success

Q4 showed 26% reduction in aggregate losses and 8% improvement in per-person losses compared to Q3 peak.

Continued Challenges

Despite improvements, Q4 loss levels levels Q1, indicating ongoing issues.

Executive Conclusion: The Path Forward

Transforming India’s derivatives ecosystem for sustainable growth and investor protection

The Stark Reality

91%
of traders lose money consistently across years
₹1.1L
average loss per trader in FY25
41%
increase in total losses year-over-year

Strategic Market Insights

Global Market Leadership

Maintained

India position as the world’s largest derivatives market, trading 4.3x more contracts than the exchange, the robustness of our financial .

Regulatory Effectiveness

Promising

Q4 FY25 losses the regulatory interventions moderate functionality.

Participation Quality

Evolving

The 30% reduction in trader count () indicates of participants committed market participants.

Framework for Sustainable Growth

Enhanced Investor Education

  • Mandatory risk disclosure simulations
  • Comprehensive derivatives literacy programs
  • Real-time loss tracking and alerts
  • Behavioral finance integration in training

Adaptive Regulatory Framework

  • Dynamic position limits market
  • Enhanced real-time risk monitoring systems
  • Graduated access demonstrated competency
  • Continuous effectiveness mechanisms

Optimal Market Structure

  • Balanced access institutional vs retail
  • Technology-driven risk management solutions
  • Transparent cost structures fee
  • Improved price discovery mechanisms

The Way Forward

For Regulators

Continue policy refinement, the delicate balance market access investor protection innovation risk management tools.

For Brokers & Intermediaries

Implement education deploy advanced risk management technologies, long-term client short-term transaction .

For Individual Investors

Approach caution, over speculation, the 91% a sobering participation.

Final Verdict: Progress Amid Persistent Challenges

While SEBI’s measures demonstrated in moderating and reducing remains derivatives a proposition 91% The requires sustained innovation, market prioritize participation growth.

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