How F&O addiction is turning dreams into debt for retail investors

Abhimanyu Sharma (name changed on request), a 35-year-old media professional from Delhi, always felt the pull of the stock market. With a family legacy of long-term investors—both his father and grandfather were seasoned players—he was drawn to the idea of accelerating returns through Futures and Options (F&O) trading. "What attracted me towards it was an aim to keep 10% of my investments rolling in short-term trades to compound my returns faster," he recalls.

Little did he know that this goal would lead him down a dangerous path.

Abhimanyu is one of the millions of stock investors trying their luck in F&O trading, where they believe small investments can bring bigger returns. They enter with little knowledge and get hooked on trading even after facing repeated losses. Experts have likened the risk-taking behaviour of some F&O investors to gambling.

A report by markets regulator Securities and Exchange Board of India (Sebi) says that between FY22 and FY24, over one crore retail traders lost Rs 1.81 lakh crore in the F&O segment.

Even as the losses accrue, more and more youths are trying their luck in the F&O segment. The proportion of traders below 30 in the F&O segment rose from 31% in FY23 to 43% in FY24, according to the Sebi report.

They aren't just depleting their savings, but even borrowing money, and at times even mortgaging their parents' homes, to fund their F&O bets.

But why do retail investors get attracted to one of the riskiest investment instruments for making money?

WHY STOCK INVESTORS FIND F&O SO TEMPTING

Futures and Options are financial instruments that allow traders to speculate on future stock or index prices. Their appeal lies in leverage—the ability to control large positions with relatively small capital.

This leverage can amplify profits but also magnifies losses. While F&O trading applies to commodities, currencies, and other assets, this article specifically highlights the equities derivatives segment.

Chirag Gupta (name changed on request), another 35-year-old investor from Mathura, shares a similar introduction to F&O trading. "When I was introduced to the F&O segment by a friend who had been trading for some time, he first told me how much money he was making," Chirag remembers. "The way he explained it is that with F&O, you can actually buy more stocks for a lesser investment, which prompted me further. I thought, 'If he can make money this way, maybe I can too!'"

This sentiment is similar to Abhimanyu's initial confidence. "I had full faith in my ability to be able to pull this off, but I was never really aware of the risks involved," he says. "I only saw a way to grow my money at a slightly faster pace."

Abhinay Singh, a 28-year-old from Mumbai, shares a similar reason for venturing into the risky trading segment. "The possibility of high returns was the major reason for F&O. No, I was not even aware about the actual things that these markets depend on,” he says, adding, “I don't think most of the players do understand that, maybe that is the reason for around 90% people making loss in it."

Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, states that F&O trading carries significantly higher risks than other forms of investment due to leverage. “Leverage amplifies both gains and losses, which can lead to extreme outcomes, especially in volatile markets,” he explains.

BEGINNER'S LUCK TEMPTS STOCK INVESTORS

Both Abhimanyu and Chirag experienced early success, often referred to as 'beginner's luck'. The unexpected success is what attracts most investors to invest more.

Abhimanyu's first trade on a Bank Nifty weekly expiry turned Rs 3,000 into Rs 30,000 within half an hour. By the end of the day, he had transformed this into a staggering Rs 8.75 lakh.

Bank Nifty is a stock market index that represents the performance of the banking sector in India.

Chirag had a similar experience. "Man, that high while doing the first trade was fantastic!" he exclaims. "In the very first go, I made a profit of around Rs 12,000 and made more profits after that. But I never thought that the market was volatile, and I could lose my money."

F&O ADDICTION: THE GAMBLER’S GRIP

Despite the high likelihood of losses, many traders find it hard to stop.

The Sebi study reveals that over 75% of loss-making traders continued trading in F&O, even after facing consecutive years of setbacks.

Puneet Sharma likens this behaviour to gambling addiction. “Like gambling, trading F&O can trigger an emotional response that is addictive, with traders continuing to place bets in the hope of recovering losses," he explains.

Cognitive biases, such as the gambler's fallacy and overconfidence bias, further fuel this addiction.

Sujit Modi, Chief Investment Officer at Share.Market, describes F&O as a "zero-sum game".

"Unlike equities, F&O instruments need to be settled on a fixed expiry day. This makes this instrument a zero-sum game—there can only be one winner. Combine that with the inherent leverage built into the product, and it becomes one of the riskiest instruments for making money," Modi tells India Today Digital.

Devam Sardana, Business Head at Lemonn, agrees, and explains why people display gambling behaviour in case of F&O trading.

“When you hold a stock and its price goes up, you make money. The same may not be the case for options, as it depends on multiple factors like volatility and time to expiry,” Sardana tells India Today Digital.

“But what I truly believe is that it is behavioural bias that contributes more—people tend to display gambling behaviour as they are unable to make peace with losses,” he explains.

Chirag's experience illustrates these psychological traps.

After initial success, he faced a major loss. "I had chosen a trade that seemed promising, but the market changed unexpectedly, and I was gradually losing money. One day I lost around Rs 3.5 lakh in a second," he tells India Today Digital.

Despite this setback, the addiction pulled him back in.

"Next day, I started again because I could get my money back and get some profit. But I lost more money again," he says.

HOW TRADERS ARE LOSING MONEY IN FUTURES AND OPTIONS

Abhimanyu's story took a similar turn. Riding high on success, he invested his entire Rs 8.75 lakh in an OTM (Out of the money) Bank Nifty put option. As the market turned against him, and he tried to exit his position, he encountered a technical glitch. "My entire profit vanished in 7 mins, and it all became ZERO!" he recalls.

These losses are not unique.

As mentioned earlier, over one crore traders lost a staggering Rs 1.81 lakh crore in the F&O segment between FY22 and FY24. Alarmingly, 93% of individual traders lost money, with an average loss of Rs 2 lakh per trader. Sebi also highlighted that the proportion of young traders (below 30 years) in the F&O segment rose from 31% in FY23 to 43% in FY24.

Both Abhimanyu and Chirag learnt their lessons the hard way.

Abhimanyu stepped away from F&O trading for years before returning with a disciplined approach. "I played for 20% moves with very tight stop-losses and learned to wait for the right trades," he tells India Today Digital.

Chirag's recovery involved deeper understanding.

"I started watching videos on YouTube. Everybody there was showing how you can make profit. But nobody told that you can also lose all your money," notes Chirag. "Whatever knowledge I had was through trials and errors. Every mistake was worth it because it showed me how to correct something on the trading front."

HOW FINFLUENCERS ARE DRAGGING PEOPLE INTO DEBT

In June, Sebi chairperson Madhabi Puri Buch issued a stark warning, saying the markets regulator had anecdotal evidence that retail investors were borrowing money — sometimes even mortgaging their parents' homes — to place speculative bets in the derivatives segment.

She added that household savings were increasingly being funnelled into risky trading practices like Futures & Options (F&O), which, according to Sebi research, results in losses for nine out of 10 retail investors.

Buch stressed that this speculative activity is not only financially destructive for individuals but also fails to contribute to productive economic growth.

Chartered Accountant Roshan Agarwal's account provides a stark example of this risk. He shared a real-life example that highlighted the risks involved in F&O trading.

He spoke about a third-year BTech student who lost Rs 46 lakh in F&O trades, despite having no regular income. The student had already lost Rs 20 lakh the previous year but continued trading, funding his addiction through personal loans, borrowing money from friends, and even secretly using his parents' funds.

"I asked him the reason, he said he is addicted to trading and is unable to quit. His parents are unaware of the same. He took personal loan from banks, friends and some money from his parent’s accounts to fund the same," Agarwal noted.

He also blamed this on financial influencers, or 'finfluencers', who promote the idea of quick, easy money on social media while hiding the high risks associated with F&O trading.

Whitespace Alpha's Puneet Sharma believes stricter regulations on these finfluencers could help protect new traders.

"Tighter regulations on financial influencers, or finfluencers, would likely reduce the influx of inexperienced traders into the derivatives market. Many retail investors are drawn into F&O trading through content created by influencers who may oversimplify the risks or promote speculative trading strategies without fully disclosing the potential downsides," Sharma told India Today Digital.

"By imposing stricter regulations, such as requiring influencers to disclose the risks of trading and ensuring they are qualified to offer financial advice, Sebi could protect retail investors from being lured into complex and risky trades based on incomplete or biased information," he adds.

SEBI STEPS IN, BUT WILL IT BE ENOUGH?

In response to these concerning trends, Sebi has implemented several measures to protect retail investors, including reducing weekly expiries and increasing minimum contract sizes.

“Sebi's directives are a positive start, but more regulation is necessary. The Rs 1.8 lakh crore losses incurred by small traders in F&O highlight the need for stricter controls,” says Tarun Singh, Founder & MD of Highbrow Securities.

“Enhancing margin requirements, improving disclosure, and boosting financial literacy are crucial,” Singh adds, advocating for comprehensive investor education to create a more resilient market environment.

Sujit Modi supports this push for tighter regulations, seeing it as necessary for market stability.

“As any segment matures, regulators must establish guardrails that ensure sustained growth and stability. We've seen this successfully implemented in equities and mutual funds, and we anticipate similar measures for the F&O segment,” he says, adding, "These regulations will strengthen and protect the market, fostering long-term growth and maturity."

F&O INVESTORS' ADVICE FOR OTHER TRADERS

Today, both Abhimanyu and Chirag have sobering messages for aspiring F&O traders.

"If one really wants to do it, they should not treat it lightly. They should test themselves with the tiniest of trade for at least one full year," advises Abhimanyu.

Chirag echoes this sentiment. "Now I understand how to trade on F&O, but the market is volatile. If you enter into it, please take a check because profit is so luring while loss is frustrating."

“People should not go with F&O trading based on someone's advice. We should try to be more aware of the nuances of the trading in F&O,” says Mumbai-based Abhinay.

IS FUTURES AND OPTIONS THE REAL CULPRIT?

While the risks of F&O trading are significant, experts argue that the issue lies not with the instruments themselves but with the lack of awareness and education among retail investors.

“Both complexity and lack of education significantly contribute to high F&O losses, but lack of experience plays an even more crucial role,” explains Tarun Singh.

Ravi Singh, Senior Vice President of Retail Research at Religare Broking Limited, adds, "F&O trading has gained widespread appeal among retail investors due to its potential for high returns and leverage. While the potential to generate profits in F&O is immense, the risks are equally significant, especially for inexperienced individuals."

Supriya Dedgaonkar, a 29-year-old from Pune, highlights her own experience. "I was new to Fintech... after reading a lot, I couldn’t decode the concept and thought of trying my hand at it. My first trade was random; I bought the first option I saw, and to my luck, I ended up in green for that particular trade."

However, she acknowledged that it was a complete DIY journey for her and after spending years trading, she still feels "like a newbie as there’s so much to learn". Her F&O journey, like many other retail investors, highlights the importance of a well-rounded education for complex financial products.

Lemon’s business head, Devam Sardana, calls for the need for more education and awareness about the F&O segment. "There needs to be a lot more done in the domain of investor education on such non-linear products like F&O,” he notes.

IS THERE A WAY TO EMERGE SUCCESSFUL IN F&O TRADING?

Puneet Sharma from Whitespace Alpha highlights the current F&O trading landscape as a blend of speculation and the emergence of more sophisticated strategies among retail traders.

“The growing participation in F&O is a mix of both speculative culture and a gradual shift toward more sophisticated investment strategies," he explains, warning that speculation is currently driving much of the surge.

In the risky world of F&O trading, the thrill of making fast money can swiftly turn into a nightmare of debt and lost dreams. Many investors dive in without fully understanding the implications, which can lead to serious trouble.

The bottomline isn't one of despair but of cautious hope. With proper education and smart strategies, F&O trading can become a useful tool rather than a dangerous gamble. As new regulations come into play, it’s up to each investor to prioritise learning and stay aware of the risks.

The big question to ask yourself is -- Will you tread carefully in this treacherous market, or will you become just another statistic in a game where most people end up as losers?