SEBI’s latest study provides useful evidence on the profitability and behaviour of individual traders, but it has an important analytical limitation: it does not adequately examine whether the observed shift from futures towards options is partly driven by differences in the cost of obtaining equivalent directional exposure.
This is particularly relevant for systematic and trend-following traders. A trader seeking long or short directional exposure can obtain it either through a conventional futures contract or, subject to strike, expiry and pricing conditions, through a synthetic futures position constructed using options. These two approaches can provide economically similar directional exposure, but their transaction-cost structures can be materially different. Therefore, simply classifying the trader as an “options trader” or a “futures trader” does not necessarily reveal the underlying trading objective or strategy.
SEBI’s own data highlights the issue. Individual futures turnover declined by approximately 20% in FY26, while options turnover increased by approximately 16%. At the same time, individual traders incurred approximately ₹24,800 crore of transaction costs in FY26, with STT alone accounting for 27% of total transaction costs. SEBI also finds that transaction costs were significant enough to convert approximately 4.4 lakh gross-profit-making traders into net loss-makers in FY26.
However, the study does not investigate an important counterfactual: what would happen if the cost of trading futures were materially reduced? In particular, it does not examine whether traders currently obtaining directional exposure through synthetic futures or other option combinations would migrate towards the actual futures contract if the cost differential were reduced.
This omission is important because such a migration could have a positive market-structure effect. If cost-sensitive directional and trend-following traders currently prefer synthetic futures because of the relative cost of conventional futures, reducing the cost of futures could bring this activity back into the futures market. Greater participation could improve trading depth, bid-ask spreads, continuity of quotes and price discovery. SEBI itself acknowledges that active proprietary participants are important liquidity providers and that their activity contributes to tighter spreads, continuous quote availability and efficient price discovery.
Therefore, the policy question should not be limited to whether individual traders lose money in derivatives. A broader question is whether the existing cost structure is unintentionally encouraging economically directional traders to express their exposure through options rather than through the futures market.
The distinction is important because a reduction in futures transaction costs would not necessarily mean encouraging speculative trading. It could instead encourage traders who already require leveraged directional exposure—particularly systematic, algorithmic and trend-following participants—to use the more direct futures instrument rather than constructing synthetic exposure through multiple option legs.
Such a shift could reduce unnecessary transaction complexity, improve the economic efficiency of directional trading and strengthen liquidity in the futures market. SEBI’s own study shows that futures activity declined substantially in FY26, while options activity remained comparatively resilient. Yet the report does not test whether relative transaction costs contributed to this product substitution.
Consequently, the conclusion that options participation represents primarily speculative behaviour should be treated with caution. The same options turnover can contain very different underlying strategies—short-term speculation, hedging, income strategies, arbitrage and synthetic directional exposure. A product-level classification cannot by itself distinguish between these economic purposes.
A more complete regulatory study should therefore analyse traders based not merely on the instrument traded, but on the economic exposure and strategy being implemented. It should specifically measure the prevalence of synthetic futures, compare the all-in cost of synthetic versus conventional futures exposure, and conduct a counterfactual analysis of how futures participation would change under lower transaction costs.
The objective should not simply be to reduce derivatives participation. The objective should be to ensure that regulation and taxation do not unintentionally distort the choice between economically equivalent instruments. If lower futures costs cause even a portion of synthetic-futures activity to migrate to conventional futures, the resulting increase in futures participation could itself strengthen market liquidity and price discovery.
In short, SEBI has demonstrated that transaction costs matter, and it has demonstrated that futures participation is declining. What it has not demonstrated is whether the cost structure itself is contributing to the migration of directional trading from futures to options-based structures. That missing analysis is highly relevant before using the current product mix as a basis for further regulatory intervention.