SEBI Urges Retail Investors to Assess Risks in F&O Trading

In a recent statement, SEBI Chairman Tuhin Kanta Pandey highlighted the significant challenges retail investors face in the derivatives market. He pointed out that many retail investors incur heavy losses, primarily due to their insufficient understanding of the risks associated with these financial products. This lack of awareness is alarming, especially considering that retail traders lost a staggering Rs 1.06 lakh crore in FY25, a dramatic increase of 41% from the previous year.

Pandey emphasized that derivatives should primarily be used for hedging and risk management rather than for speculative trading aimed at quick profits. He urged investors to evaluate their risk capacity and gain a deeper understanding of how derivative contracts function before diving into trading. This approach encourages investors to focus on building long-term wealth rather than chasing short-term gains, which can lead to significant losses.

The troubling findings from recent SEBI studies reveal that 91% of individual traders have faced net losses, a statistic that remains consistent over the years. Additionally, participation in the derivatives market has seen a sharp decline, with the number of retail traders dropping from 61.4 lakh in Q1 to only 42.7 lakh in Q4 of FY25. This decrease followed SEBI's introduction of stricter regulations aimed at curbing speculative trading.

Pandey also raised concerns about the digital landscape, where fraudsters are taking advantage of investors’ trust. He warned against unsolicited messages and dubious 'finfluencers' that promise guaranteed returns, which is a risky proposition in a country where 80% of households are risk-averse and prioritize capital preservation. He stressed the importance of vigilance and education in protecting investors from such scams.

To combat digital fraud, SEBI has implemented several measures over the past 18 months, leading to the removal of over one lakh misleading or unlawful content from social media platforms. This initiative aims to safeguard retail investors from the growing number of fraudulent schemes targeting unsuspecting individuals.

In summary, as the derivatives market continues to evolve, it is imperative for retail investors in India to be well-informed and cautious. Understanding the risks involved and avoiding speculative trades will not only help them preserve their capital but also enable them to make informed investment decisions for their future.