NSE chief cautions retail investors against derivatives trading

NSE chief Ashishkumar Chauhan warns retail investors against F&O trading, advises investing in equities through mutual funds.

National Stock Exchange (NSE) chief Ashishkumar Chauhan on Friday cautioned retail investors against trading in derivatives and suggested them to invest in equities through mutual fund route.

He emphasized that trading in Futures & Options (F&O) derivatives should be limited to informed investors who can manage risk and comprehend the market.

Recently, Finance Minister Nirmala Sitharaman and chief economic advisor V Anantha Nageswaran flagged the growing risk of F&O trading for retail investors. In November 2023, SEBI chief Madhabi Puri Buch also cautioned investors against heavy bets on F&O.

"Retail investors should not participate in F&O trading.They should invest in equities through mutual fund route," Chauhan, MD and CEO of NSE, said at an event here.

He cautioned that while derivatives have their utility, it should only be traded by those who fully understand the risks and have the capacity to manage them. Those lacking this understanding or risk appetite should avoid derivatives trading.

Despite this, F&O trading continues to grow in popularity, driven by the potential for profit and the rising trading volumes.

The segment's popularity is evident from its massive growth, with the monthly turnover in the F&O segment reaching Rs 8,740 lakh crore in March 2024, compared to Rs 217 lakh crore in March 2019. At the same time, the average daily turnover in the equity cash segment was Rs 1 lakh crore, while the F&O segment saw an average daily turnover of about Rs 330 lakh crore.