Condition The rapid increase in trading volume in the futures and options (F&O) segment in the years 2020 can pose many challenges. This is because retail investors who are not following risk management can be affected by sudden fluctuations in the market. This has been said in a report of the Reserve Bank of India. The participation of retail investors in the futures and options segment has increased rapidly in recent years. It has increased by 42.8 percent to 95.7 lakh in 2023-24. It was 65 lakh in 2022-23.
Huge surge in trading volume
RBI’s half-yearly Financial Stability Report (FSR) said that trading volumes in the futures and options segment have increased significantly over the years. But a linear growth pattern has been observed in trading volumes when measured under ‘premium turnover’. ‘Premium turnover’ as a proportion of the cash market has remained stable over the last three years. According to the report, the equity futures and options (equity derivatives) market can improve price discovery and increase market liquidity in the underlying cash market. However, it is also associated with higher risks. It said that since the ‘derivatives’ market is more complex, investor protection is important.
Individuals lost more money
A research published by SEBI in January 2023 showed that 89 percent of individual participants in the futures and options segment lost money during the financial year 2018-19 to 2021-22. According to the report, “The rapid increase in trading volume in the futures and options segment in recent years can create many challenges. Retail investors may be affected by sudden fluctuations in the market without proper risk management and this may impact the cash market.” The Securities and Exchange Board of India has constituted an expert working group to review the futures and options market from the point of view of investor protection as well as overall systemic risk management.
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