Zerodha co-founder Nithin Kamath, in his latest tweet, warned how higher securities transaction tax (STT) and other measures intended to curb futures and options (F&O) speculation may have led traders towards riskier trading behaviour.
“One of the unintended consequences of increasing STT and all the other measures to curb F&O speculation is that they may have pushed traders toward even riskier trading behaviour,” Kamath said in a post on X,
Kamath shared that approximately 50% of individual futures traders and 40% of option sellers on Zerodha were profitable, compared with just 10% of option buyers. He added that it was too early to assess the profitability of margin trading facility (MTF), given that it was a relatively new product.
According to Kamath, Indian markets had evolved significantly and called for careful consideration of the broader effects of regulatory and taxation changes.
“Indian markets are no longer a backwater, the recent bear phase notwithstanding. We need careful thinking about second- and third-order effects, and thoughtful regulatory design and calibration,” he noted.
Zerodha’s Nithin Kamath shares profitability data for traders
Kamath highlighted the difference in profitability across trading segments, pointing to the relatively low proportion of profitable option buyers compared with futures traders and option sellers.
“Across Zerodha, here’s roughly the percentage of individual traders who are profitable: Futures: ≈50%; Option sellers: ≈40%; Option buyers: ≈10%; MTF: too early to tell, considering it’s a new product,” he said.
He explained that although losses from buying options were limited to the premium paid, repeated options buying could result in greater cumulative losses over time compared with trading futures or selling options.
“Yes, in theory, losses from buying options are limited to the premium paid. But buying options repeatedly, more often than not, ends with traders losing more money over time than trading futures or selling options. This is not to say that trading futures or selling options is low-risk. It’s a relative comparison,” Kamath said.
How STT hikes and weekly expiries changed trading behaviour
Kamath said the steady increase in STT on futures had contributed to trading activity shifting from futures to options. He noted that options currently accounted for approximately 90% of all F&O trading activity.
He also pointed to larger contract sizes, which have increased the margin requirements for trading futures and selling options. In comparison, buying options requires payment of the premium, making it less expensive in terms of the initial amount needed to take a position.
Weekly expiries have also influenced trading behaviour, according to Kamath. As more contracts began expiring every week, trading increasingly shifted towards options with very short time horizons.
“Earlier, traders mostly traded monthly expiries. As more contracts started expiring every week, trading effectively became 0-day options. Traders began thinking in days rather than weeks and betting on price moves over increasingly short horizons,” he said.
Kamath added that these developments had coincided with significant growth in MTF, which allows traders to borrow against eligible stocks and hold positions for extended periods. However, he noted that MTF was a long-only product.
Nithin Kamath flags crypto F&O growth and regulatory challenges
Kamath also highlighted the growth of crypto F&O trading, saying regulatory measures in Indian markets could have had unintended consequences beyond traditional derivatives trading.
He said he had come across multiple new platforms advertising crypto F&O contracts, including perpetual futures, in recent weeks. According to Kamath, these platforms operated in an unregulated environment and offered leverage of up to 100 times to 300 times on many contracts.
“The larger point I’m making is that any regulatory or taxation change has second- and third-order effects. These changes fundamentally alter market structure, and not always for the better, as the recent measures show. The risks always show up in the most unexpected places,” Kamath said.
He added that such risks became particularly visible when markets fell or traded sideways and liquidity began to decline, resulting in wider spreads, higher impact costs and a further reduction in trading volumes.
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