Youngsters betting big on F&O trading, reveals Economic Survey 2024

The Economic Survey 2024 revealed that a majority of new retail investors are likely young and may possess a higher risk appetite. This is reflected in the growing interest retail investors have shown in derivatives trading, especially in expiration-day trading.

“While derivatives are hedging instruments, they are mostly used as speculative instruments by investors worldwide. India is likely no exception,” the survey noted, adding that the number of unique tax IDs registered on the NSE rose from 2.7 crore in FY19 to 9.2 crore in FY24.

“The enhanced participation of retail investors in the Indian capital market is hugely welcome and lends stability to the capital market. It has also enabled retail investors to earn higher returns on their savings,” the Economic Survey 2024 stated.

The survey further mentioned that derivatives trading holds the potential for outsized gains, catering to human gambling instincts and potentially augmenting income if profitable. These factors are likely driving active retail participation in derivatives trading.

“However, globally, derivatives trading often results in losses for investors. Raising investor awareness and providing continuous financial education is essential to warn them of the low or negative expected returns from derivatives trading. A significant stock correction could lead to considerable losses for retail investors participating in capital markets through derivatives,” the survey warned.

The survey added that investors’ behavioral response to significant losses might lead them to feel 'cheated' by unseen forces, potentially deterring them from returning to capital markets for a long time. This would be detrimental to both the investors and the economy.

Recently, SEBI chief Madhabi Puri Buch, on July 19, warned market participants that the explosive growth in the derivatives market is no longer a micro issue but a macro one. With daily turnover in the futures and options (F&O) segment nearing Rs 400 lakh crore, Buch emphasized the need for regulatory intervention to curb speculative activities that jeopardize household savings and economic stability. SEBI is preparing to release a consultation paper aimed at reducing turnover in the derivatives market.