Zerodha co-founder Nithin Kamath has said that higher securities transaction tax and other measures to curb futures and options speculation may have pushed traders towards riskier trading behaviour. In a post on X, Kamath shared Zerodha’s approximate estimates of the proportion of individual traders who are profitable across different strategies.
He put the figure at around 50% for futures traders, 40% for options sellers and 10% for options buyers. He said it was too early to assess profitability under margin trading facility , as it is a new product. Why options buying has gained popularityKamath said options account for around 90% of all F&O trading activity.
He attributed the shift from futures to options partly to the steady increase in STT on futures over the years. He also cited larger contract sizes, which have increased the margin required for futures trading and options selling. Buying options requires payment of the premium, making the initial capital requirement lower, he said.
Although losses on options bought outright are limited to the premium paid, repeated options buying can result in greater cumulative losses over time than trading futures or selling options, Kamath said. He clarified that futures trading and options selling are not low-risk strategies.
He also pointed to the growth in weekly expiries, saying traders had increasingly shifted from monthly contracts to bets on price movements over shorter periods, including zero-day-to-expiry options. MTF book falls as mid- and small-cap stocks declineKamath also cited growth in MTF, under which investors borrow from brokers to buy eligible shares, with the shares serving as collateral.
Separately, the combined MTF book across the NSE and BSE fell by ₹7,516 crore in October through October 23 to ₹1.51 lakh crore, its lowest level in two months. This marked the first monthly decline in seven months. The funded book had reached a record ₹1.59 lakh crore at the end of September.
As of October 23, the NSE’s MTF book stood at ₹1.44 lakh crore and the BSE’s at ₹7,427 crore. The decline coincided with a sell-off in the broader market. Over the seven trading sessions through October 23, the Nifty Midcap index fell 6.2% and the Nifty Smallcap index declined nearly 9%, while the Nifty 50 shed less than 1%.
Small-cap stocks accounted for 49% of the outstanding MTF book, followed by large-caps at 31% and mid-caps at 20%, according to the report. How MTF works and why it carries higher riskUnder MTF, investors pay part of a share purchase’s value upfront and borrow the rest from their broker, paying interest on the loan.
The shares serve as collateral. If prices fall, the collateral’s value declines and the broker may ask the investor to provide additional funds or liquidate positions. Because investors take exposure beyond the money they put in, a fall in share prices can magnify losses relative to their own capital.
Interest costs also add to the expense of holding positions. During a sharp correction, margin calls and forced selling can add to pressure on stocks. Kamath flags crypto derivativesKamath also flagged crypto F&O activity, saying some platforms offer leverage of 100 times to 300 times on these contracts.
He said he had come across multiple platforms advertising crypto derivatives, including perpetual futures, that were not regulated. He said regulatory and taxation changes can have second- and third-order effects on market structure. These risks can become more visible when markets fall or move sideways and liquidity dries up, resulting in wider spreads, higher market impact costs and lower trading volumes, he added.
Kamath called for careful regulatory design and calibration to account for these unintended effects.