Speaking on the current situation with derivative trading, Managing Director & CIO for Aequitas Investment Consultancy Siddhartha Bhaiya said that it has turned options trading into a casino without any glamour.

Furthermore, Bhaiya also remarked derivatives trading market and the National Stock Exchange (NSE) as India’s Las Vegas.

“The biggest form of gambling in India right now is derivatives. It is India’s Las Vegas without any of the glamour,” Bhaiya said. He further elaborated that 90% of retail customers in the derivatives section, or nearly 80% of the total, even those with a combination of derivatives and stocks are losing money, according to stock exchange data.

Securities and Exchange Board of India’s (SEBI) analysis suggests a significant rise in equity derivatives segment between FY19 and FY22. However, it also imparts a majority of traders suffering losses, according to Business Today.

The report indicated a 500% increase in individual traders for the said period, which stood at 45.2 lakh in FY22.

The report saw 45.2 lakh individual traders in the equity F&O segment in FY22, up from 7.1 lakh in FY19, an increase of over 500% despite constant warning from market watchdogs informing about the risks to investors.

Nine out of 10 traders suffered losses in the equity F&O segment. “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,” SEBI wrote.

The odds of profiting from them are much lower, but for some reason, the investors are confident that they can beat the odds. “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%,” says Bhaiya.

Just get rid of your derivatives account, says Siddhartha Bhaiya

Bhaiya also advised people to stop trading in derivatives. He further said that only investors make money through trading, while traders only end up paying hefty taxes. And hence, Bhaiya opined that it is better to leave derivatives trading completely. At the end, Bhaiya said that none of the people at his firm have a derivative trading account. And that he would advise others to do the same.

“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 the 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,” concluded Siddhartha Bhaiya.