Futures and options, or F&O, are like the foundation of our financial strategy. They give our traders the tools they need to deal with the complex world of price changes in various assets. But, it's important to realise that becoming a pro at F&O trading takes more than just a surface-level understanding.
The futures and options (F&O) market is a complex and risky market, and it is no surprise that 9 out of 10 traders lose money in it. There are many reasons for this, but some of the most common include:
- Lack of knowledge: Many traders enter the F&O market without a good understanding of how it works. They may not understand the risks involved, or they may not have a trading strategy.
- Emotional trading: When traders make decisions based on emotion rather than logic, they are more likely to make mistakes. This is especially true when the market is volatile.
- Poor risk management: Traders who do not properly manage their risk are more likely to suffer large losses. This is because they may not use stop losses or they may not take profits when they are available.
- Overtrading: Traders who overtrade are more likely to make mistakes. This is because they are not giving themselves enough time to analyse the market and make informed decisions.
- Pursuing losses: Traders who attempt to recover their losses by increasing their trading activity often find themselves in a precarious situation, often resulting in even greater losses.
A study by the Securities and Exchange Board of India (SEBI) found that 89% of individual traders in the equity F&O segment lost money in FY22. The average loss for these traders was Rs. 1.1 lakh. The study also found that 90% of the active traders in the equity F&O segment lost money.
In plain terms, it's vital to grasp that a staggering 9 out of every 10 traders who venture into Futures and Options (F&Os) end up losing money. This fact highlights the considerable difficulties faced by most people in this financial arena. To succeed here, it's not just about making money; it's about mastering risk management and smart strategies, which set apart the 1 in 10 who come out as winners.
If you are considering trading in F&Os, it is important to be aware of the risks involved. You should also take the time to learn about the market and develop a trading strategy that suits your risk tolerance. And most importantly, you should always practise good risk management.
Talking about risk management, Samco's #AndekhaSach feature offers a comprehensive toolkit for traders and investors. It delves into your personal trading experiences, analyzes your past trades, revealing hidden insights. This feature was built with the objective of empowering our users with the information leading to better risk planning.
If you are serious about trading in F&Os, I recommend that you seek out a reputable trading mentor or coach. They can help you develop a trading strategy that is right for you and they can also provide guidance and support as you start trading.
Trading in F&Os can be a profitable venture, but it is important to remember that it is also a risky one. By being aware of the risks and taking the necessary precautions, you can increase your chances of success.
Conclusion
The world of Futures and Options (F&Os) is intricate and fraught with risks, but it holds the potential for profitability for those who are willing to invest time and effort in thorough research and prudent measures. If you find yourself contemplating entry into the F&O market, I strongly emphasise the importance of acquiring a deep understanding of its intricacies. Additionally, it's imperative to craft a trading strategy tailored to your unique risk tolerance.
Above all else, I cannot stress enough the significance of unwavering commitment to sound risk management practices. Happy to hear your experience/ thoughts on this in the comment section.
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FAQs
Recently, the Securities and Exchange Board of India (SEBI) issued a report, stating that 9 out of 10 individual traders in the equity F&O segment incurred an average loss of Rs 1.1 lakh during FY22, with most of them operating in the options segment.
What percentage of option traders lose money? ›
His agency, the Securities and Exchange Board of India, known as Sebi, says 90% of active retail traders lose money trading options and other derivative contracts.
Do 9 in 10 derivatives traders lose money? ›
The study also found that 90% of the active traders in the equity F&O segment lost money. In plain terms, it's vital to grasp that a staggering 9 out of every 10 traders who venture into Futures and Options (F&Os) end up losing money.
Did 9 out of 10 individual traders in equity futures and options segment incurred net losses? ›
Nine out of 10 individual traders in equity Futures and Options (F&O) segment incurred losses in financial year 2022, showed a study conducted by the Securities and Exchange Board of India (Sebi). Only a handful people made money as the top 1% of traders cornered 51% of the total profits during the financial year 2022.
What is the success rate of F&O trading? ›
In a research report brought out last year, markets regulator Sebi showed that the futures and options (F&O) trading was a loss-making proposition for investors. The report revealed that 89% investors lost money through these activities, and only 11% made profits.
How many options traders lose money? ›
The statistic that 90% of option traders lose money is often cited, but it's essential to understand the factors that contribute to this high failure rate: 1.
Is it true that 90% of traders lose money? ›
According to various studies and reports, between 70% to 90% of retail traders lose money every quarter. This article will discuss the main reasons retail traders lose money and how they can enhance their performance and profitability.
Can I become rich by option trading? ›
You might very well have the patience and diligence to get rich with options. It will probably take you years to accomplish, but with dedication and effort it is entirely possible to make a lot of money with options on top of your long-term investing.
What is the success rate of F&O in India? ›
According to a study by Sebi, in FY22 only 11 percent of individual traders in the equity F&O segment made profits, with an average profit of Rs 1.5 lakh. The percentage went down to 10 percent for active traders, though the average profit made by them went up to Rs 1.9 lakh during the same period.
What is the 9 20 option trading strategy? ›
The 9:20 AM short straddle strategy offers traders a dynamic approach to capturing potential profit from market volatility in the early trading hours. By selling both a call and a put option with the same strike price and expiration date, traders position themselves to profit regardless of the market's direction.
After going over these 24 statistics it's very obvious to tell why traders fail. More often than not trading decisions are not based on sound research, tested trading methods or their trading journal, but on emotions, the need for entertainment and the hope to make a fortune in no time.
Do nine out of 10 equity F&O traders lose money in India True or false? ›
Consider, for instance, that 89 percent of the individual traders (i.e. 9 out of 10 individual traders) in the equity F&O segment incurred losses, with an average loss of Rs 1.1 lakh during FY22. On the other hand, 90 percent of the active traders incurred average losses of Rs 1.25 lakh during the same period.
How do you offset F&O losses? ›
A loss on an F&O trade can be adjusted against all income apart from your salary. This may include income from house property, business or profession, or any other source. It reduces your overall tax liability. This can help in lowering your tax liability.
Why do 80% of traders lose money? ›
Another reason why day traders tend to lose money is that it's very different from long-term investing. While traders take advantage of price swings (which means they have to make specific predictions), investors tend to buy a diversified basket of assets for the long haul.
Why 95% of traders lose money? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
What is the maximum loss on options on futures? ›
The maximum amount options buyers can lose is the premium that they originally paid, plus brokerage commissions. But before initiating an options position, the trader should first calculate the breakeven point. To calculate an options breakeven point the trader uses the strike price and the premium.
What is maximum loss in futures? ›
The potential for loss is theoretically unlimited for the seller of a futures contract and is substantial for the buyer. Options, on the other hand, have limited risk for the buyer (the most you can lose is the premium you paid), but unlimited potential profit.
What is the maximum loss in option buying? ›
If you've sold an option and if the market moves against your position big time, you may have to bring in funds to make good the losses. Now coming to option buying, you are correct. The maximum loss is the premium paid so you can say your capital is the maximum amount you can lose.
How do you calculate F&O loss? ›
How To Calculate F&O Turnover?
- Consider the total positive and negative variances when determining turnover.
- Include the premium received by the trader when selling options.
- If a trade is reversed, account for the subsequent difference in the turnover.
