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Below the Comment on SEBI report on Equity Derivatives Segment by Ajay Garg, CEO, SMC Global Securities

A recent report published by SEBI highlights a concerning trend, retail investors continue to bear the brunt of losses in the Equity Derivatives Segment (EDS), accounting for a staggering 91% of total losses even after recent regulatory interventions. SEBI has introduced several commendable measures aimed at protecting retail investors, such as increasing margin requirements in the Futures & Options (F&O) segment. These changes are designed to discourage small, under-informed traders from entering a highly complex and risky space. The core purpose of the derivatives market is to hedge risk not to make quick wealth. However, following the sharp post-COVID market rallies, many retail investors were drawn in by the promise of quick profits. This trend was further fueled by a wave of financial influencers promoting unrealistic expectations and encouraging speculative behavior. Unfortunately, many of these investors enter the market with limited capital and even less knowledge, often trading naked out-of-the-money (OTM) options making more losses than profit. To address this, SEBI has tightened regulations, including increasing margins and lot sizes. While this has led to a decline in both turnover and the number of unique clients participating in the segment, this dip can likely be seen as a temporary correction. India still ranks above global peers in terms of the number of contracts traded, even after the recent drop in turnover and unique clients compared to last year.

The core issue remains the same as retail investors are often driven by greed rather than strategy. Despite tighter rules, many continue to re-enter the market, hoping for quick gains. This cycle of speculation needs to be broken. SEBI must take stronger action against those who mislead investors, particularly financial influencers who sell dreams of instant wealth through F&O trading. Increased investor awareness programs and strict enforcement against misleading promotions can help curb this trend. At the end of the day, it's not just about regulation, it's about educating retail investors and protecting them from the very human tendency to chase fast money in a market that demands discipline and knowledge.

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