9 Out of 10 Traders Lose Money in F&Os (2024)

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

Recommended next reads

The Mind of an Ego Trader – 10 Actions

Timon Rossolimos 8 months ago

Equity Stop Loss: Managing Your Trading Risk

Rizal Irnandi Hidayat 11 months ago

Unveiling the Power of Risk Parity and Portfolio…

Laura de Aguiar 3 months ago

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.

Sources: