DELHI (Diya TV) — While Bitcoin and GameStop have dominated headlines in recent years, a more extreme case of speculation has emerged in India’s stock market. According to data from the Futures Industry Association (FIA), a staggering 78% of all equity options contracts traded worldwide in 2023 were executed in India, marking a significant surge in trading activity compared to previous years.
Last year alone, India saw a remarkable increase in stock index options trading, reaching a total of 84.3 billion contracts, a 153% rise from 2022. The National Stock Exchange witnessed a total turnover of $4.5 trillion in futures and options trading on Thursday, reflecting the immense scale of the derivatives market in the country.
Despite the booming derivatives market, concerns have been raised about the potential risks it poses. While individual investors are collectively experiencing significant losses, brokerages and stock exchanges are reaping substantial profits. This trend mirrors the scenario witnessed in the United States in 2021, where a combination of a bullish market and accessible mobile trading platforms attracted a wave of small investors and social media influencers.
One alarming aspect of the derivatives frenzy is the prevalence of short-term options trading, with a majority of traders incurring losses. A report from India’s securities regulator, the Securities and Exchange Board (SEBI), revealed that nine out of ten individual traders in equity futures and options suffered losses in the fiscal year ending March 2022, amounting to an average loss equivalent to the country’s per capita income.
Additionally, there has been a rapid expansion in the number of investors participating in derivatives trading, with a significant proportion being young and inexperienced individuals with limited assets. The rise in derivative traders from half a million in 2019 to four million in 2023, as reported by brokerage ICICI Direct, highlights the growing interest in speculative trading among the youth.
The allure of India’s prolonged equity bull market has further fueled the derivatives frenzy, particularly among investors who lack the financial means to directly invest in stocks. Despite warnings from SEBI about the risks associated with speculative trading, the trend has shown no signs of abating.
While regulatory measures have been introduced to address some of the concerns, such as tightening margin requirements, the speculative fervor continues unabated. The rapid growth of the derivatives market, which is highly profitable for intermediaries but often detrimental to individual investors, raises critical questions about market stability and investor protection.
