Futures and options: read this before you go near derivatives

What actually happens to people who do this

SEBI has run this study several times using data from the largest brokers, covering crores of real accounts. The findings have been consistent across bull markets and falling ones.

Some further detail from the FY22 to FY24 study, which is worth reading slowly. Only 7.2% of individual traders made any profit at all over the three years. Only about 1% earned more than ₹1 lakh after transaction costs. The worst affected 3.5% of loss makers, roughly four lakh people, lost an average of ₹28 lakh each.

The FY25 study covered about 96 lakh unique traders across the top 13 brokers. The average loss per trader was around ₹1.1 lakh.

What futures and options actually are

A derivative is a contract whose value comes from something else, such as the Nifty index or a company share. Unlike a share, it has an expiry date, after which it ceases to exist.

A future is an agreement to buy or sell something at a set price on a future date. You put down a margin rather than the full value, so gains and losses are magnified relative to the money you committed. Both sides are obliged to settle.

An option gives the buyer the right, but not the obligation, to buy or sell at a set price before expiry. The buyer pays a premium for that right. The most the buyer can lose is that premium. The seller receives the premium and takes on an obligation, with losses that can be far larger than the amount received.

Those two roles are not two sides of a similar coin. Buying options has capped loss and a low probability of profit. Selling options has capped profit and a low probability of a very large loss. Beginners are usually pushed toward buying because the maximum loss sounds comfortable.

Why this is harder than it looks

Three specific mechanisms cause the losses, and none of them is about picking the wrong direction.

Time decay

An option loses value every day simply because there is less time left for it to become useful. You can be right about the direction, and still lose money because the move took too long. In a share, being right eventually is enough. In an option, being right after expiry is worth nothing at all.

The odds are set against the buyer

Option premiums are priced by people with better models, faster systems and vastly more capital. A weekly option bought far from the current price is cheap precisely because it very rarely pays. Cheap is not the same as good value.

Costs on a magnified base

STT, brokerage, exchange charges, GST and stamp duty all apply, and they apply to the contract value rather than to your margin. Budget 2026 raised STT on futures from 0.02% to 0.05% and on options to 0.15%. Frequent expiry trading multiplies all of this.

Put together: you need to be right about direction, right about timing, and right by enough to clear costs, against opponents better equipped than you. That is why the failure rate stays above 90% regardless of what the market does.

What SEBI changed, and why

The regulator responded to this data with a set of structural changes, rolled out in phases from November 2024. If you last read about F&O a couple of years ago, your mental model is out of date.

• Contract size raised from a ₹5 to ₹10 lakh band to ₹15 to ₹20 lakh, effective for new index contracts from 20 November 2024. Lot sizes were revised to match.
• Weekly expiries cut to one benchmark index per exchange. NSE kept Nifty, BSE kept Sensex. Bank Nifty weekly options were discontinued, leaving monthly expiry only.
• Option premiums must be collected upfront from buyers.
• An extra 2% Extreme Loss Margin on short index options near expiry.
• Calendar spread margin benefit removed on expiry day.
• Intraday monitoring of position limits introduced from April 2025.

The effect was visible. The number of unique individual F&O traders fell from 61.4 lakh in the first quarter of FY25 to 42.7 lakh in the fourth quarter, a decline of about 20% over six months. SEBI noted a reduction in losses in the final quarter.

Read that honestly, though. The loss rate stayed at 91%. Fewer people are participating, and the ones with the smallest accounts were pushed out first. The activity did not become safer. It became more expensive to enter.

Where derivatives genuinely make sense

Derivatives exist for a real reason, and it is not speculation. They were created for hedging, which is reducing a risk you already carry.

A business expecting a large foreign currency payment can lock in a rate. A fund holding a large equity portfolio can buy protection against a fall. In both cases the derivative reduces uncertainty for someone who already has an exposure.

That is a different activity from buying a weekly index option hoping it multiplies. The instruments are the same. The purpose is opposite: one is reducing risk that already exists, the other is creating risk that did not.

Almost no individual investor in India with a modest portfolio has a hedging need that justifies this. If you are considering derivatives, be honest about which of the two activities you are actually undertaking.

The plain conclusion

AlphaVik gives clear views rather than hiding behind neutrality, so here is one.

For an individual investor building long term wealth, futures and options are not a suitable tool. The measured outcome is a loss for roughly nine in ten participants, in every year the regulator has examined. The 1% who earn more than ₹1 lakh a year are not doing it casually alongside a job.

This is not a claim that nobody succeeds, and it is not a moral position. It is a statement about the distribution of outcomes for people who look like you. Someone will always point to a trader who did well. The data describes the other ninety-nine.

If you want equity exposure, own equity. An index fund held for years asks nothing of you daily, cannot expire worthless, and has a very different record.