The author is a Research Intern at the Indian Society of Artificial Intelligence and Law as October 2024.
A recent study conducted by the market regulator of the country, the Securities and Exchange Board of India (SEBI), shed light on tectonic disparities in the market space concerning equity derivatives. Per the study, the utilisation of algorithm trading for the purposes of proprietary trading and that of foreign funds resulted in gross profits that totalled an amount of ₹588.4 billion ($7 billion) from having traded in the equity derivates of Indian markets in the Financial Year that ended on March’24.[1]
However, it was noted that in a disparate stark contrast, several individual traders faced monumental consequential losses.
The study further detailed that almost 93% of the individual traders had suffered losses in the Equity Futures and Options (F&O) Segment, in the preceding three years, that is, from the financial years of 2022 to 2024; the aggregate losses totalling to an amount exceeding ₹1.8 lakh crore.
Notably, in the immediately preceding Financial Year [2023 – March 2024] alone, the net losses incurred among individual traders approximated an amount of ₹75,000 crore.
The findings of SEBI underscore the challenges faced by individual traders when the former is having to compete against a more technologically furthered, well-funded entity in the market space of derivatives. The insight clearly contends that institutional entities that have inculcated algo-trading strategies have a clear competitive edge over those who lack the former, i.e., individual traders.