High-Speed Traders Reap $7 Billion in India's Options Market as Retail Investors Suffer Losses

High-Speed Traders Reap $7 Billion in India's Options Market as Retail Investors Suffer Losses

Foreign funds and proprietary trading desks, utilizing sophisticated algorithms, made approximately 588.4 billion rupees ($7 billion) in profits from Indian equity derivatives trading, according to a recent report from the Securities and Exchange Board of India (SEBI). The report revealed that individual traders, who primarily engaged in futures and options, collectively lost around 610 billion rupees during the financial year ending in March.

This significant profit disparity highlights the challenges faced by retail investors in India's fast-growing derivatives market, where turnover reached a staggering $6 trillion in early February, surpassing the nation’s economic output. SEBI has frequently cautioned small investors about the risks involved in competing against well-capitalized and highly experienced market participants.

"Beating a mathematically-driven trading model is nearly impossible for individual traders," said Karthick Jonagadla, CEO of Mumbai-based Quantace Research and Capital Pvt. "The complexities of trading equity options leave little room for retail investors to achieve favorable reward-to-risk ratios."

The findings come after US-based Jane Street Group revealed that its strategy in India generated $1 billion in profits, shedding light on how retail traders often find themselves on the losing side of such trades. SEBI’s study also disclosed that 90% of retail derivatives traders in India lost money over a three-year period, with the average loss per trader around 200,000 rupees. Only 1% of traders earned over 100,000 rupees, while more than 75% of the 10 million individual traders in India reported an annual income below 500,000 rupees.

SEBI's report emphasizes the growing imbalance in India’s derivatives market, prompting calls for further regulatory measures to protect small investors.