End of options trading for small retailers?

Hi - Just came across a news on MoneyControl. Might be the end of options trading for small retailers.

Link - MC Exclusive| F&O crackdown: Only one weekly options contract per exchange, min lot size Rs 20-30 lakh, derivatives panel suggests


Regulated speculation is better than money going to unregulated speculative arena. I will be disappointed if the panel recommendation come into force.

IMO market should be trusted to take out those who cannot handle the market :slightly_smiling_face:


I think this won’t happen, from the past experience sebi recommended panels all they create is fuss in the media headers like 24 hours trading.

After all sebi didn’t have any issues with daily expiry.

It’s 2000 all over again. Dabba trading will again account for a sizeable chunk of trades.

Another year, another season of kil… sorry, ‘saving’ the retailers.

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Playing Devil’s advocate

“Institutions want retail traders out of the game because they bring more volatility and hence risk to their systems”

“Institutions want more money going into structred asset management products like Mutual funds and for that retail has to pump money there and not into trading”

@iamshrimohan u have been on institutional prop desks. Does any of these two propositions from the devil carry weight ?


ChatGPT-4o reply to the statment-1:

The statement “Institutions want retail out of the game because they bring more volatility and hence risk to their systems” is a simplification and not entirely accurate.

True aspects:

  1. Volatility: Retail investors can contribute to market volatility. Their trading behavior can sometimes be more speculative and less informed compared to institutional investors, which can lead to sudden and significant price movements.
  2. Risk: Increased volatility can indeed introduce more risk into the system, which institutions typically aim to manage and minimize.

False or Oversimplified aspects:

  1. Market Participation: Many institutions actually benefit from retail participation. It increases liquidity, which is essential for efficient markets. Higher liquidity makes it easier for institutions to enter and exit positions without causing significant price movements.
  2. Economic Incentives: Retail investors are clients for many financial institutions. Brokerages, asset management firms, and banks often provide services specifically tailored to retail clients, generating substantial revenue from fees, commissions, and other charges.
  3. Market Dynamics: Blaming retail investors solely for volatility overlooks the complexity of market dynamics. Institutional trading strategies, such as high-frequency trading and large block trades, can also contribute to market volatility.

In summary, while retail investors can add to market volatility and risk, institutions generally do not seek to exclude them entirely from the market. Instead, they adapt their strategies to account for the behavior of retail investors and often benefit from their participation.

ChatGPT-4o reply to the statment-2:

The statement “Institutions want more money going into structured asset management products like mutual funds and for that retail has to pump money there and not into trading” has some elements of truth, but it is also an oversimplification.

True Aspects:

  1. Revenue from Fees: Institutions generally earn consistent revenue from fees associated with managing structured products like mutual funds. The more assets under management (AUM), the higher the fee income.
  2. Stability and Control: Mutual funds and other structured products provide a more stable and predictable flow of capital. This stability is often preferred over the high volatility and unpredictability of individual retail trading.

False or Oversimplified Aspects:

  1. Retail Trading Benefits: Institutions also benefit from retail trading. Brokerages and trading platforms generate revenue from commissions, spreads, and other trading-related fees.
  2. Market Dynamics: The financial ecosystem includes both trading and investing. Retail investors provide liquidity and contribute to market efficiency. Excluding retail trading would reduce liquidity and could negatively impact market dynamics.
  3. Investor Preferences: Not all retail investors are suited for or interested in structured asset management products. Some prefer the direct engagement and potential high returns of trading individual securities.
  4. Product Diversity: Financial institutions often offer a range of products, including both structured asset management products and trading services, to cater to different investor needs and preferences.

In summary, while institutions do encourage investment in structured asset management products for their stability and revenue potential, they also recognize and benefit from retail trading activities. The financial industry is built on a balance of both types of activities.

By institutions I mean hedge funds, prop trading firms, other asset management companies etc…not entities like broking houses who benefit out of retail trading.

All those HFTs running collocated at the exchange any one has any idea what they do or how much volatility and risk they bring ?

How many people start business and how many fail ?
How many try to become a film star and how many fail ?
How many try their hand with cricket and not even reach the Ranji team ?
How many write the UPSC exam after years and years of investment but fail ?
How many workers strive day and night but not even become a panchayat member ?

Success rate anywhere in any field is near equal to success in trading. People are hoping and risking in every field. Y single our trading am yet to fathom.

Only a miniscule percentage of the population actively trade the market. These are people who have surplus cash. Why restrict them ? It’s their money, their choice. Those who cannot hold on to their capital will soon be out of market.

Regulators should look at how easy people are getting loans now, how people can trade with money that they don’t have etc rather than putting breaks on regulated trading activity which already is heavily charged with SEBI report itself saying even profitable traders losing good chunk of profit to trading expenses.

Very disappointed with the attitude SEBI has towards retail traders, They are going to make life of a retail trader more difficult, If they are so concerned about common man house hold savings going towards a speculative instrument ( according to them), why is the government not taking any action against fantasy sports leagues which has really picked up in India now days,Why is SEBI not concentrating on education of retail traders they have a huge budget . These kind of policy will force Indian trader’s who are making a living out of trading to move towards unregulated market’s.
I really want to know what the Broker Association think about the sujections kept in front of SEBI by the working committee.

If you haven’t kept tabs of the market, nowadays retail controls more than 50% of the markets. Contrary to the popular belief, retail is smarter and more agile than institutions combined.

Institutions are now at a disadvantage since nobody would want to invest with them given superior returns a smart retail can generate via self portfolio management.

Who would pay them the 1.5%+ of AUM annually for MFs or 2&20% for the AIF or 5% PMS?

Indians are kids and institutions are mommies and daddies.

Country voted for this. Country will get this. Fair deal.

@t7support Desks vary, much like traders within the same house or group. We received mixed reviews from retail participants across different desks. I was primarily involved with the Index Options Desk and would like to share our perspective on retail participants. From 2014 to 2019, retail participation was minimal and had little impact on the market. During this time, an unspoken equilibrium existed based on market conditions and available leverage. I had access to up to 100x intraday leverage, and by using POA, we could reduce the cost of capital to nearly zero.

However, we experienced a significant setback when POA was disallowed, which impacted 70-80% of our top-line revenue. As the peak margin requirements gradually increased, our desk’s profitability declined, leading to its eventual closure due to the rising cost of funds from 20 bps to 1200-1500 bps. Consequently, our desk was not operating during the period of increased retail participation. If I were to extrapolate, I believe that the increased retail participation would have negatively impacted our desk due to limited funding. Competing against more retail traders would have required higher margins, and the VaR levels would have exceeded our control. Our desk was generating returns in the range of 500-600 bps, which was decent at the time due to the lower cost of capital. In the current market scenario, we would not have survived with that return on capital assigned.


Thanks @iamshrimohan.

K so devil has a point :sweat_smile:


Haha! In my opinion, SEBI is fulfilling its role as a regulator by protecting small retail investors from potential black swan events. However, for those looking to scale up into trading, the regulations are like a hurdle.


Most small guys want to become big guys (account size). More the hurdles more the delay for small guy to become a big guy.

I am for freedom of the retail to choose what they want to do with their money… :grinning:

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I would see trading as entertainment… :slightly_smiling_face:

Besides it is a game of chance and skill. No one has gambled and consistently made money from the market.