Nearly 90% of retail traders lose money in stock market due to leverage, behaviour, structure: Analyst

Nearly nine out of ten retail traders in India end up losing money in the stock market, and the reason goes far beyond poor strategy. According to market expert Hariprasad K, SEBI-registered Research Analyst and Founder of Livelong Wealth, the real causes lie in the combination of leverage, market structure, and trading behaviour, which together make consistent profits difficult for individual participants.

Data from the Securities and Exchange Board of India (SEBI) shows that around 91% of individual traders in the derivatives segment reported losses in FY2025, with total losses exceeding ₹1 lakh crore. Hariprasad said this trend is not a one-time event but reflects deeper issues in the way retail investors participate in modern markets.

“The reality is that most retail traders do not lose because they lack strategies. They lose because of how they execute them. The structure of the market, the use of leverage, and emotional decision-making together create conditions where losses become very common,” said Hariprasad K.

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One of the biggest risks, he explained, is the easy availability of leverage. Even in the cash segment, traders can take exposure several times higher than their capital through intraday trades or Margin Trading Facility (MTF). While this creates the impression of higher opportunity, it also magnifies losses.

“A trader with ₹10,000 can take a position worth ₹50,000 using leverage. If the trade goes wrong, the loss is also multiplied. Margin calls, interest costs and forced liquidation can quickly wipe out capital. Overexposure and poor position sizing are among the biggest reasons retail traders struggle,” he said.

The problem becomes even more serious in derivatives, where a large number of retail participants prefer buying options because of the possibility of high returns with small capital. However, Hariprasad noted that many traders ignore the impact of time decay, which works against option buyers.

“Options lose value with time. Even if the market moves in the expected direction, the premium may fall. This puts option buyers at a structural disadvantage, while institutions that sell options often benefit from this setup,” he said.

Behavioural mistakes also play a major role. According to him, many traders are attracted to cheap out-of-the-money options because they look affordable and promise large percentage gains, but frequent small losses usually outweigh occasional big profits.

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“Overtrading, chasing momentum, and reacting emotionally after losses damage performance over time. Markets reward discipline, not excitement,” he said.

Hariprasad added that retail traders are also competing with institutional players who use algorithms, faster execution systems and strict risk management models.

“In the end, the difference between profitable and losing traders is not prediction but risk control. Those who survive in the market focus first on protecting capital. Profit comes only after that,” he said.

He also warned that many retail investors enter derivatives without gaining enough experience in equities, increasing the chances of losses.

“The answer is not just strategy, psychology or market structure. It is all three. But if one factor matters the most, it is risk management. In markets, survival comes first, profits later,” Hariprasad said.