Playing the risky game of high probability does not necessarily make a winner. The exponential spurt in retail F&O traders is concerning, but also surprising as to what makes the risky bet attractive if traders lose money most of the time. Or is it just a trap?
Picture being part of a Russian roulette. A bullet is placed in a revolver, the cylinder is spun, someone pulls the trigger, and you are in the line of firing. What are the chances of being killed? Well, the probability of dying is one in six in that random but lethal game of luck. This game of probability is almost exactly what pans out in futures and options (F&O) trading, also referred to as derivatives. High risks and low or no returns have made the equity F&O segment for retail or individual traders a heady cocktail.
Surprisingly, despite steep losses in equity F&O, the number of retail or individual traders in the segment is ballooning. Derivative trading has stripped cash market volumes with a phenomenal rise in the number of active derivatives traders. In October, the total average daily turnover (ADTO) in the F&O segment was Rs 329 trillion, surging 130 percent from same month last year, at Rs 143 trillion, shows analysis by Motilal Oswal Financial Services, based on data from NSE and BSE. This year so far, ADTO in the F&O segment was the highest in September, at Rs 334 trillion, up 121 percent year-on-year (y-o-y).