SRV Media
New Delhi [India], April 30: With the traditional barriers for retail participants now a thing of the past, F&O traders are flooding the derivatives markets in India in large numbers. Data from the stock exchanges reveals that between FY19 and FY22, the number of unique individual F&O traders grew by 500%. The momentum continued in 2023, with the trading volume in India's options segment hitting 85 billion options contracts -- the highest in all the markets across the world.
At the surface level, these numbers seem optimistic and indicative of a buoyant derivatives segment that seems to hold great promise for its participants. However, upon peeling back the layers and taking a closer look, the reality appears far grimmer than expected. A report from the Securities and Exchange Board of India (SEBI) quantified it best -- nearly 90% or 9 out of 10 F&O traders suffered losses in FY22.
Putting two and two together, it is evident that despite rising retail participation in the retail segment, retail performance has been subpar, at best.
Speaking of this unique problem faced by F&O traders, Nilesh Sharma, ED & President at leading technology-driven brokerage firm Samco Securities, explains:
"The absence of dynamic and scalable analytical tools in the options market is a major driving force behind the losses faced by many traders. We're operating in a fast-paced market where milliseconds can mean the difference between profit and steep losses. Without advanced tools that provide real-time data analysis, risk assessment and strategy testing, traders are essentially flying blind. This deficiency forces many market participants to make hasty and ill-informed decisions -- which almost always result in significant financial losses. The need for comprehensive and integrated trading solutions has never been more urgent, as these tools can equip traders with the insights needed to navigate the complexities of the options market effectively."
Sharma's commentary summarises the core issue of the problems plaguing options traders in the country. Their challenges, however, include various dimensions.
The Multifaceted Problems Driving Losses for Options Traders
For traders at any stage of their trading journey -- from beginners to seasoned experts -- the issues and challenges remain fairly homogenous. Outlined here are the core problems that contribute to the substantial losses among F&O traders.
1. Expensive Options Calculators and Strategy Builders
Options traders need advanced tools to calculate potential outcomes and build trading strategies. These tools, such as option calculators and strategy builders, are essential for analysing various scenarios and making informed decisions. However, one of the main issues with these tools is their high cost. Many sophisticated options trading tools come with a price tag that can be a significant expense, especially for individual traders or small trading firms.
2. Lack of Integrated Trading Platforms
While some options trading tools are available for free, they often cannot be integrated into existing trading platforms. Due to this disconnect, traders can use these tools to plan and test their strategies -- but they then need to switch to a different platform to execute trades. This multi-step process increases the risk of errors and slows down the process of trade execution, which can lead to unexpected delays in order placement.
3. Volatility and Missed Opportunities
The options market is a highly volatile market segment where prices move rapidly within short periods. This volatility can cause traders to miss out on potentially profitable opportunities. Even a slight delay in executing a trade can result in significant price differences and affect the profitability of the trade. Due to the fast-paced nature of this market, traders need to be extremely reactive, and any tool or platform lag can result in missed opportunities.
4. Complicated Trade Execution
Executing options trading strategies can be a complex and time-consuming process. This is because options trading involves multiple variables like strike prices, expiry dates, contract types and options Greeks -- each of which needs to be carefully analysed, selected or managed. The complexity increases with advanced strategies like spreads, straddles and condors, which involve multiple trades simultaneously. The time and effort required to manage these trades can detract from the overall trading experience and lead to errors if not managed properly.
5. Insufficient Strategy Analytics
Another significant issue for options traders is the lack of tools that support thorough strategy analysis before executing trades. However, many tools and platforms do not provide adequate resources for deep analysis, leaving traders to make decisions based on incomplete information. Without in-depth analysis, traders may overlook critical factors such as the impact of market events on their positions, the probability of different outcomes and how changes in market variables like volatility and interest rates could affect their strategies.
6. Limited Customisation
Options traders also often face the challenge of limited customisation and flexibility in the few trading tools and platforms that may be accessible to them. Many tools come with predefined strategies and parameters, which may not align perfectly with a trader's specific approach or the unique conditions of the market they are targeting. For instance, a trader might have a unique insight into market behaviour that requires a customised set of criteria for option selection, or they may want to test a novel strategy that is not supported by mainstream tools.
Many Problems, One Solution: Samco Options Calculator for F&O Traders
The challenges outlined above add to the narrative explained by Samco's Nilesh Sharma, who also tells us how Samco Securities walks the talk and is committed to improving the gamut of tools available to retail F&O traders in India. The latest offering from the brokerage service provider is the Samco options calculator -- proprietarily labelled as Options BRO.
Here, Nilesh Sharma explains how the revolutionary Samco options calculator is changing the game and making options trading more successful for F&O traders.
"Options BRO is the revolutionary options calculator from Samco that effectively tackles the main challenges faced by options traders. Firstly, it addresses the high cost of strategy tools because we offer Options BRO free of cost to our customers. Traders can choose from over 1,000 option trading strategies, which can all be deeply analysed and customised according to their risk tolerance -- whether they are conservative, moderate or aggressive risk-takers. This flexibility ensures that traders can match their strategies with their market outlook and risk preferences.
Samco's options calculator also solves the issue of requiring separate tools for strategy building and execution. With Options BRO, traders can build, research and optimise their strategies all in one place. Also, since Samco's options calculator is integrated into the Samco trading app, it means that once a strategy is chosen, execution can be done quickly and efficiently -- so traders do not miss out on fast-moving market opportunities."
Options BRO does everything mentioned above and more. This options calculator from Samco addresses the need for real-time data and rapid execution to handle the volatility of the options market. It uses over 1.5 lakh mathematical computations, evaluates more than 2,000 option contracts and analyses over 1,000 strategies to suggest the top strategies based on the trader's inputs, thus ensuring that traders are always equipped with the most current and relevant data for decision-making.
Options BRO also excels in terms of strategy analysis before execution as it offers detailed insights into each strategy's potential outcomes and risks. This allows traders to make informed decisions before placing trades. The calculator also ranks strategies based on various parameters like the probability of profit, risk-reward ratio, maximum profit/loss and margin requirements.
To access Samco's options calculator free of cost, all traders need to do is sign up for the Samco demat and trading account and log into the Samco trading app.
About SAMCO Securities
SAMCO Securities was incorporated by Mr Jimeet Modi, Founder & CEO of SAMCO Group in 2015. As the country's leading flat-fee brokerage and wealth-tech platform, SAMCO Securities provides retail investors access to sophisticated financial technology and makes their wealth-creation journey simple, informed, and cost-effective. SAMCO Securities' mission is to eliminate the existing challenges faced by traders and investors and democratise access to the wealth management process for every Indian. With customer centricity at SAMCO's core, we implement a quantitative approach to provide differentiated solutions that empower our customers in acing the capital markets.
SAMCO Securities is pioneering the stock market trading by introducing industry-first features like My Trade Story, Personal Index and Trade Spreadsheet to name a few under its CRP strategy.
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