Interestingly, of the total earnings made by the two categories (proprietary traders and FPIs), ₹ 58840 or 96.5% were made through algorithms-based trading, according to the latest study by market regulator Securities and Exchange Board of India (SEBI).
The proprietary desk and Foreign Portfolio Investors (FPIs) made a colossal profit of ₹61,000 crore in FY24 by trading in the derivatives segment. The bulk of the gains came at the expense of individual investors and others who lost an equal amount of money by participating in the Futures and Options (F&O) segment of India’s equity market.
Interestingly, of the total earnings made by the two categories (proprietary traders and FPIs), ₹ 58840 or 96.5% were made through algorithms-based trading, according to the latest study by market regulator Securities and Exchange Board of India (SEBI).
Algo entities are those entities, who have done at least one trade in a year using algorithmic order. These traders use complex algorithms and powerful computers to execute trades with multiple strategies. One of the strategies is to execute trades at lightning speeds for tiny profit margins, which when done repeatedly adds up to a substantial sum.
In recent years, the rise in algorithmic trading and the increasing participation of individual retail investors in the derivatives space has further propelled the market’s growth. The availability of sophisticated trading platforms and lower transaction costs resulted in more participation from the retail category, which in turn increased the market liquidity.
As a result, the number of retail investors has almost doubled in two years from about 51 lakh in FY22 to about 96 lakh in FY24. Even though they contribute about 30% of total F&O turnover in FY24, they are a clear majority in number terms, as 99.8% of total traders in the equity F&O segment are Individuals!
The study further shows that nine out of every 10 retail traders in the derivatives market lost money over the last three years through March 2024. Interestingly, despite consecutive years of losses, more than 75% of loss-making traders continued trading in F&O. Additionally, a similar percentage of the one crore individual traders in India declared an annual income of less than ₹5 lakh, the study showed.
Source – www.cnbctv18.com/market/algo-entities-rake-in-big-bucks-pockets-over-96-of-fo-profits-19481249.htm
