Although F&O trading is risky and harmful, every year many investors lose their huge capital by investing in it. According to a SEBI study, approximately 93% of F&O investors reported an average loss of Rs 2 lakh during the financial year 2022-24, while only 7% managed to book a profit and only 1% managed to book a profit of more than Rs 1 lakh. Dimplakumar Shah, MD & Co-Head, Investment Advisory-Distribution, JM Financial Services Ltd. said. SEBI announced new regulations in the FO segment to ensure safety of retail investors and stability in the market after massive losses to investors in the F&O segment. These new FO rules came into effect on November 20, 2024 and include increasing the deal size to Rs.15 lakh from the previous Rs.5-10 lakh, reduction in weekly expiry time (six weekly contracts per month instead of earlier 18 contracts), additional margin requirement (additional Margin Requirement (Excess Loss Margin) Upfront of option premium from February 1, 2025 onwards Collection, including intraday monitoring of position limits from April 1, 2025 and removal of calendar spread treatment on expiry date from February 1, 2025. Analysis of impact of new F&O rules: Minimum size of futures and upfront collection of premium on speculative trades for retail investors will restrict as it becomes more capital intensive and also reduce excessive intraday leverage. It also aims to reduce volatility on the expiry date by eliminating the calendar spread strategy. The new rules will lead to retail investors exiting the options market. The objective is to reduce retail participation in speculative trading in index derivatives to minimize losses incurred during F&O trades. The new framework can encourage small retail investors or traders to move towards the cash market as well as encourage the investment culture in India which is very important for bringing the market in a sustainable manner. The new framework will impact volumes but stabilize the market. A stable and well-regulated F&O market will attract more institutional investors and the participation of foreign institutional investors in the derivatives market will also increase. As retail investors adopt the new rules, F&O activity of some retail investors will decrease, which will impact volumes.
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Frontpage Insights: Sebi's new rules for F&O shock traders in the short term! But in the long run, the fruits of patience will be sweet
