Only 1 out of 10 F&O traders made profit in FY22; average loss stood at ₹1.25 lakh (2024)

FAQs

How do you calculate F&O loss? ›

We multiply the purchase value by the lot size and then multiply the sales value by the lot size. The difference between this gives us the profit or loss, which is the turnover.

According to a study by Sebi, in FY22 only 11 percent of individual traders in the equity F&O segment made profits, with an average profit of Rs 1.5 lakh.

The formula to calculate F&O turnover is relatively straightforward. It involves multiplying the number of contracts traded (buy or sell) by the contract value and the underlying asset's price.

Mathematically, Average Trade Loss is calculated by summing up the losses incurred on individual trades and dividing the total by the number of trades.

Futures and Options trading under Section 43(5) are considered as non-speculative transactions. This means any income that comes from F&O trading is taxed in a similar way as that of business transactions. Therefore, any F&O loss is treated as a business loss.

ITR-3 for Business Activities: For individuals and Hindu Undivided Families (HUFs) who carry out F&O trading as a business activity, ITR-3 is the appropriate form. This form is designed to account for business-related income and losses, including those incurred through F&O trading.

A recent study by Sebi showed that 90 per cent of active investors (those who trade more than five times a year) made losses in FY22, with an average loss of Rs 60,000.

Lack Of Discipline

However, many new traders enter the market with a casual mindset, often influenced by the stories of quick riches. This lack of discipline leads to impulsive decisions and poor trading plans that fail to analyse the market thoroughly.

Is F&O profitable? ›

Futures and Options (F&O) trading offers significant opportunities for profits but also carries substantial risks. So, traders must have strong risk management in F&O trading to manage their capital. This guide will discuss the best ways to manage your capital efficiently in F&O trading.

Set Off Profits Against Previous Losses

Unfortunately, if you suffer a net loss from your F&O trading by the year end, you can carry forward your losses for up to 8 years, which can be adjusted against your future profits, which reduces your tax liability in the year of adjustment.

The best ratio one can identify and is highly recommended by every expert is 3:1 loss to profit ratio. This means that you can be wrong two times in a row and still make a profit from being right the next time.

This rule suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle [1].

An NYU report on U.S. margins revealed the average net profit margin is 7.71% across different industries. But that doesn't mean your ideal profit margin will align with this number. As a rule of thumb, 5% is a low margin, 10% is a healthy margin, and 20% is a high margin.

The trader's P&L can be estimated if they choose to close their position prior to the expiration date. This will hold true for both calls and puts traders. P&L = [Difference between buying and selling price of premium] * Lot size * Number of lots.

Calculating profit and loss on a trade is done by multiplying the dollar value of a one-tick move by the number of ticks the futures contract has moved since you purchased the contract.

As a put seller your maximum loss is the strike price minus the premium. To get to a point where your loss is zero (breakeven) the price of the option should not be less than the premium already received. Your maximum gain as a put seller is the premium received.

Loss = C.P. – S.P. (C.P.> S.P.) Where C.P. is the actual price of the product or commodity and S.P. is the sale price at which the product has been sold to the customer.