Siddhartha Bhaiya, a Mumbai-based money manager, recently said at an event that the boom in derivative trading has turned National Stock Exchange (NSE) into "India's Las Vegas".
Speaking at an event organised by The Indian Association of Investment Professionals (IAIP), the India Society of CFA Institute, the Managing Director & CIO - Aequitas Investment Consultancy Pvt Ltd said that 90% of volumes in India at the moment are on derivatives.
"There is stock exchange data that says 90% of retail people in the derivative segment are losing money, so effectively 80% of the people are losing money. Not exactly 80% but what I'm saying is the balance, who might be doing a combination of derivatives and stocks are also losing," he said.
"The biggest form of gambling in India right now is derivatives. NSE is India's Las Vegas without any of the glamour."
In an important analysis done by the capital markets regulator Securities and Exchange Board of India (Sebi), it has been found that while the number of individual traders in the equity derivatives segment registered an exponential rise between FY19 and FY22, a vast majority of the individuals experienced losses.
This assumes significance as the findings have once again corroborated what the Indian market watchdog has been saying for long that derivative is a risky instrument for retail investors especially those who are not fully aware of the risks of the instrument.
According to the Sebi analysis, the number of individual traders in the equity F&O segment jumped 500 per cent in FY22, when compared to the number in FY19 - up from 7.1 lakh in FY19 to 45.2 lakh in FY22.
More importantly, nine out of 10 individual traders in the equity F&O segment incurred net losses during both the years -- FY19 and FY22 even as 98% of individual traders in the equity F&O segment traded in options during FY22.
"On average, loss makers registered net trading loss close to Rs 50,000 in FY22. The average absolute net loss of a loss maker was over 15 times the net profit made by a profit maker," stated the Sebi release.
"We spend more time buying a shirt than we decide what stocks to buy," said Bhaiya.
Stock exchanges in India have lately been subjected to social media trolling for keeping nearly every day as an expiry day for the indexes. This is affecting traders as volatility has increased.
The fund manager said that retail traders believe they can beat the odds and make money off options trading despite data suggesting otherwise.
"Just get rid of your derivatives account. The data is right there. Do you know that who's making money on derivatives? It is the global FIIs who make money on derivatives. You pay 42% taxes on your derivatives transaction. All the FIIs are based out of tax-free jurisdictions, out of Cayman Islands, out of Mauritius. They pay zero taxes on the derivative transactions. It's like going to a casino and knowing it is rigged in their favour. Data says there is an 80% probability that you're not going to make money but the problem is everyone thinks that they are part of the other 20%. So, get rid of your derivatives account. I don't think so anyone in our team has a derivatives account," said Bhaiya.