Why Indian retail options traders are having a tough time to defuse what Warren Buffett called lethal time bombs

A recent study by Sebi found 88% or 9 out of 10 individual F&O traders still incurred losses in FY26. Options remained the main source of losses. The market regulator said around 92% of aggregate losses incurred by individual traders came from options trading.

The market regulator, as well as the government, has been advising investors to tread with caution in the derivatives market, which wiped off massive sums of retail investors’ wealth. This may remind investors of what Warren Buffett once said.

Warren Buffett’s warning against F&O

In his 2002 letter, Buffett called derivatives “time bombs, both for the parties that deal in them and the economic system.”“In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal,” he wrote.

"But since humans love to gamble so much, there is more money in actually cultivating gamblers than there are cultivating investors," the Berkshire Hathaway Chairman said.

Also read |Rs 91,685 crore gone! 88% retail investors lost money in F&O trading in FY26 even after strict Sebi rules

Why are Indian regulators sounding the alarm?

After presenting the Union Budget in February this year, Union Finance Minister Nirmala Sitharaman said that the government could not remain silent as speculative ‘satta’ in derivatives inflicts heavy losses on small retail investors.“We are touching only the futures and options segment. No one has increased transaction costs elsewhere. Speculation, what we call ‘satta’ in Hindi, is highly risky, and many people with limited funds face heavy losses. The nominal increase in STT is aimed purely at deterring excessive speculation. We respect market activity, but the government cannot ignore the losses faced by small investors. This tax is only one element to support that policy. How the rest of the market is regulated is up to the market regulator,” Sitharaman said in a statement to the press after her Budget speech.

To curb the derivatives frenzy, the government increased STT on F&O trading. As a result, some reduction in F&O volumes were noticed. As per Sebi’s latest study, individual traders posted aggregate net losses of about Rs 91,685 crore in FY26, compared with about Rs 1.12 lakh crore in FY25. The fall in total losses came mainly because the number of active individual traders declined, not because outcomes improved meaningfully for those who continued trading.

Meanwhile, active individual traders declined about 20% to 78.6 lakh in FY26 from 98.1 lakh in FY25, while new entrants dropped about 40%. Average loss per trader rose marginally to about Rs 1.17 lakh during the year.

Also read |Losing game! How India's small F&O traders carried 70% losses while prop desks made Rs 44,000 crore

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