Futures and options, or F&O, are like the foundation of our financial strategy. They give our traders the tools they need to deal with the complex world of price changes in various assets. But, it's important to realise that becoming a pro at F&O trading takes more than just a surface-level understanding.
The futures and options (F&O) market is a complex and risky market, and it is no surprise that 9 out of 10 traders lose money in it. There are many reasons for this, but some of the most common include:
- Lack of knowledge: Many traders enter the F&O market without a good understanding of how it works. They may not understand the risks involved, or they may not have a trading strategy.
- Emotional trading: When traders make decisions based on emotion rather than logic, they are more likely to make mistakes. This is especially true when the market is volatile.
- Poor risk management: Traders who do not properly manage their risk are more likely to suffer large losses. This is because they may not use stop losses or they may not take profits when they are available.
- Overtrading: Traders who overtrade are more likely to make mistakes. This is because they are not giving themselves enough time to analyse the market and make informed decisions.
- Pursuing losses: Traders who attempt to recover their losses by increasing their trading activity often find themselves in a precarious situation, often resulting in even greater losses.
A study by the Securities and Exchange Board of India (SEBI) found that 89% of individual traders in the equity F&O segment lost money in FY22. The average loss for these traders was Rs. 1.1 lakh. The study also found that 90% of the active traders in the equity F&O segment lost money.
In plain terms, it's vital to grasp that a staggering 9 out of every 10 traders who venture into Futures and Options (F&Os) end up losing money. This fact highlights the considerable difficulties faced by most people in this financial arena. To succeed here, it's not just about making money; it's about mastering risk management and smart strategies, which set apart the 1 in 10 who come out as winners.
If you are considering trading in F&Os, it is important to be aware of the risks involved. You should also take the time to learn about the market and develop a trading strategy that suits your risk tolerance. And most importantly, you should always practise good risk management.
Talking about risk management, Samco's #AndekhaSach feature offers a comprehensive toolkit for traders and investors. It delves into your personal trading experiences, analyzes your past trades, revealing hidden insights. This feature was built with the objective of empowering our users with the information leading to better risk planning.
If you are serious about trading in F&Os, I recommend that you seek out a reputable trading mentor or coach. They can help you develop a trading strategy that is right for you and they can also provide guidance and support as you start trading.
Trading in F&Os can be a profitable venture, but it is important to remember that it is also a risky one. By being aware of the risks and taking the necessary precautions, you can increase your chances of success.
Conclusion
The world of Futures and Options (F&Os) is intricate and fraught with risks, but it holds the potential for profitability for those who are willing to invest time and effort in thorough research and prudent measures. If you find yourself contemplating entry into the F&O market, I strongly emphasise the importance of acquiring a deep understanding of its intricacies. Additionally, it's imperative to craft a trading strategy tailored to your unique risk tolerance.
Above all else, I cannot stress enough the significance of unwavering commitment to sound risk management practices. Happy to hear your experience/ thoughts on this in the comment section.
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FAQs
The futures and options (F&O) market is a complex and risky market, and it is no surprise that 9 out of 10 traders lose money in it. There are many reasons for this, but some of the most common include: Lack of knowledge: Many traders enter the F&O market without a good understanding of how it works.
Is it true that 90% of traders lose money? ›
His agency, the Securities and Exchange Board of India, known as Sebi, says 90% of active retail traders lose money trading options and other derivative contracts. In the year ended March 2022, the latest for which figures are available, investors lost $5.4 billion.
What percentage of options traders lose money? ›
90% of traders fail to make money when trading the stock market. This statistic deems that over time 80% lose, 10% break even and just 10% make money consistently.
Why do most traders lose money in F&O? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
Is F&O trading profitable? ›
Futures and Options (F&O) trading offers significant opportunities for profits but also carries substantial risks. So, traders must have strong risk management in F&O trading to manage their capital. This guide will discuss the best ways to manage your capital efficiently in F&O trading.
Do F&O traders make money? ›
In a research report brought out last year, markets regulator Sebi showed that the futures and options (F&O) trading was a loss-making proposition for investors. The report revealed that 89% investors lost money through these activities, and only 11% made profits.
How many people make money in F&O? ›
According to a study by Sebi, in FY22 only 11 percent of individual traders in the equity F&O segment made profits, with an average profit of Rs 1.5 lakh.
What is the 90% rule in trading? ›
It is a high-stakes game where many are lured by the promise of quick riches but ultimately face harsh realities. One of the harsh realities of trading is the “Rule of 90,” which suggests that 90% of new traders lose 90% of their starting capital within 90 days of their first trade.
Do option sellers lose money? ›
An option seller may be short on a contract and then experience a rise in demand for contracts, which, in turn, inflates the price of the premium and may cause a loss, even if the stock hasn't moved.
Can you become rich with options trading? ›
Can You Make a Lot of Money Trading Options? Just as with swing trading profits, options trading can be incredibly lucrative. In fact, any investment style can be. The hard part is being consistent in your strategy and keeping your wins big and your losses small (and infrequent).
Most of the time you'll make less than 100% return per trade and will have to be able to cut your losses quickly to keep your account in tact. The success rate for investors who trade options can range from 50 to 75%.
What is the success rate of options traders? ›
What is the success rate of options traders? The success rate of option traders is estimated at 75%.
How many people lose money in F&O? ›
This is what happened with most retail traders over the last two years. A 2021-22 report from the Securities and Exchange Board of India (Sebi), India's market regulator, stated that 90% traders in F&O lost money during the year.
Is F and O trading risky? ›
F&O trading carries significant risks due to leverage and price volatility. Risks include market fluctuations, liquidity issues, and unexpected events affecting prices. Traders should have a thorough understanding of F&O products, employ risk management strategies, and only trade with funds they can afford to lose.
How do you never lose in option trading? ›
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
Why do traders lose a lot of money? ›
Fear of missing out (FOMO), fear of losing, a lack of patience, and greed are common causes of rash decisions and costly blunders. Ineffective Risk Management: Failure to manage risk properly, such as putting too much money at risk in a single trade, is a common cause of failure.
Why do 80% of traders lose money? ›
Most day traders lose money due to one or more of these four primary reasons. They have no edge in the market. They are undercapitalized. They risk too much on each trade.
Why do 80% of day traders lose money? ›
Another reason why day traders tend to lose money is that it's very different from long-term investing. While traders take advantage of price swings (which means they have to make specific predictions), investors tend to buy a diversified basket of assets for the long haul.
