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20 Jul 2026ECONOMY3 questions

₹1.05 Lakh Crore Lost in One Year: The Arithmetic of India's Derivatives Boom

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Article summary

SEBI's study of profit and loss in the equity derivatives segment found that net losses by individual traders widened to about ₹1.05 lakh crore in FY25 from roughly ₹74,800 crore in FY24, an increase of about 41 per cent, with more than 91 per cent of individual traders losing money. The study covered the top thirteen brokers with a combined base of around 96 lakh unique F&O traders. Commentary on the segment notes that algorithmic systems generate the overwhelming majority of institutional and proprietary trading profits, which frames retail participation as competition against automated counterparties operating at speeds and scales an individual cannot match. SEBI has responded by recalibrating contract sizes, rationalising weekly index derivatives and raising tail-risk coverage on expiry days, and unique trader numbers fell about 20 per cent over six months.

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recallTests whether you read the article and retained key facts.
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applicationTests whether you can apply the concept to a new scenario.
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analysisTests whether you can reason across multiple related facts.
1Q

Sample questions — answers revealed after test

ECONOMYRecallEasy

Q1. In the context of the equity derivatives market, what does the term futures and options refer to?

ATwo categories of government securities issued by the Reserve Bank of India.
BDerivative contracts whose value is derived from an underlying asset, one an obligation to transact at a set price and date, the other a right without an obligation.
CTwo types of mutual fund scheme distinguished by their lock-in period.
DLong-term and short-term fixed deposits offered by commercial banks.
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ECONOMYApplicationMedium

Q2. SEBI's data show that over 90 per cent of individual traders lost money in equity derivatives while the segment's overall turnover remained very high. Which one of the following best reconciles these two facts?

ADerivatives trading is a positive-sum activity, so both retail traders and institutions can gain simultaneously from the same trades.
BDerivatives are close to a zero-sum activity net of costs, so the losses of the many retail participants are the counterpart of gains concentrated among sophisticated institutional and proprietary traders, with transaction costs making the retail position worse still.
CThe losses are an accounting illusion that disappears once positions are held to expiry.
DHigh turnover proves that most participants are profitable, since unprofitable traders would exit immediately.
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ECONOMYAnalysisHard

Q3. Consider the following statements regarding SEBI's response to retail losses in the derivatives segment: 1. Measures adopted included recalibrating the contract size for equity derivatives and rationalising weekly index derivative products. 2. In the period after these measures, the number of unique individual traders in the segment declined compared with the previous year. 3. Because derivatives serve a legitimate hedging function, SEBI's objective was to eliminate the segment entirely rather than to moderate retail speculation within it. Which of the statements given above are correct?

A1 and 2 only
B1 only
C2 and 3 only
D1, 2 and 3
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