Retail participation in India’s equity derivatives segment recorded its first annual contraction in a decade, dropping 18 per cent year-on-year to 8.75 million unique active traders in financial year 2025-26, signalling a cooldown after tightened regulations by the country’s markets regulator.
According to two studies released by the Securities and Exchange Board of India (Sebi) on Thursday, the trader base shrank from 10.62 million in FY25, marking a sharp trend reversal following years of post-pandemic expansion.
The decline was particularly pronounced among smaller retail participants. Traders with an annual turnover below ₹10,000 plummeted by 37 per cent, while first-time entries into the segment plunged 40 per cent to 20.8 lakh in FY26. Accelerating market exits further shrank the base, as nearly 46 lakh traders who were active in FY25 ceased trading in FY26.
Despite the contraction in the user base, aggregate net losses for individual traders narrowed by 18 per cent to ₹91,685 crore in FY26, down from a revised ₹1.12 trillion in FY25. However, financial outcomes per active participant continued to worsen. The average net loss per individual trader rose 2.4 per cent to ₹1.17 lakh. Among loss-makers, the average loss stood at ₹1.47 lakh, 21 per cent higher than the average gain of ₹1.22 lakh recorded by profitable traders. Overall, 87.7 per cent of individual traders incurred net losses in FY26, compared to 91 per cent a year ago.
The regulatory shifts implemented by Sebi in November 2024, including limiting weekly index derivative contracts to one per exchange and raising minimum contract sizes, alongside an increase in the Securities Transaction Tax (STT), reshaped trading patterns. While options premium average daily turnover initially contracted by 17.4 per cent post-implementation, it later recovered by 38 per cent to ₹81,696 crore in the second half of FY26.
Institutional participants continued to capture the bulk of market profits, driven heavily by algorithmic trading strategies. Proprietary traders and foreign portfolio investors (FPIs) earned gross profits of ₹44,483 crore and ₹13,896 crore, respectively, in FY26, with 99 per cent of these gains generated by algo entities. Profitability within institutions remained highly concentrated, as the top 10 proprietary trading desks alone accounted for nearly 75 per cent of the total gross profits generated by the category.
