F&O Trading Reality Check (2026): The True Costs, Real Risks, And Why Most Retail Traders Lose

Futures & Options (F&O) trading sounds exciting in 2026 because it promises something many people secretly want: faster money with less capital. A single trade can look like it can change your month, sometimes your year. Social media reels, Telegram calls, and screenshots of huge profits make it feel normal. But if you zoom out and look at how F&O actually works, the reality is very different.

In India, regulators and exchanges have repeatedly highlighted that most individual traders lose money in equity derivatives over time. In fact, SEBI’s updated study published in September 2024 reported that the overwhelming majority of individual traders in equity F&O incurred losses between FY22 and FY24, with aggregate losses running into lakhs of crores. That isn’t a small warning—it’s a reality check.

This article is written for the common person who is curious about F&O but doesn’t want to get trapped by hype. We’ll break down what F&O is, what it actually costs to trade, where losses really come from, and why “most people losing” is not an accident—it is a feature of how the game is structured.

What exactly is F&O, and why do people trade it?

F&O stands for Futures and Options—financial contracts whose value is derived from an underlying asset like a stock or an index such as Nifty. A simple way to understand this is: instead of buying the actual share, you are trading a contract about the future price of that share or index.

People trade F&O for two main reasons. The first is hedging, which means protecting a portfolio from market falls (for example, using options like insurance). The second is speculation, which means trying to profit from price movements—up, down, or sometimes even sideways. Retail traders mostly come for speculation because the potential profit seems large compared to the money put in.

Futures vs options, What is the real difference?

A futures contract is an obligation. If you buy a futures contract, you are agreeing to buy (or settle) the underlying at a set price on a future date. If the market moves against you, your loss can keep growing, and you can be forced to add more money (margin) to keep the position open.

An options contract is a right, not an obligation. If you buy an option, you pay a premium (like an insurance premium). Your maximum loss is generally limited to that premium. That “limited loss” is one reason options attract retail traders. But the catch is that options come with time decay, probability, and pricing complexity, which makes consistent profits much harder than it looks.

If options have limited loss, why do so many options traders still lose?

Because “limited loss” doesn’t mean “small loss.” Options can expire worthless very quickly, especially in short-term contracts. Many retail traders repeatedly buy options that look cheap, but those options are cheap for a reason: the probability of making a meaningful profit is often low.

Also, in options trading, not only does the price need to move in your direction—it needs to move enough, and it needs to do it before time runs out. In other words, you are not only betting on direction, you are betting on speed.

What are the visible costs of F&O trading in 2026?

Most beginners think the only cost is brokerage. In reality, brokerage is just one part. In India, every F&O trade typically includes statutory and exchange-related charges such as Securities Transaction Tax (STT), exchange transaction charges, SEBI turnover fees, GST on certain components, and stamp duty (generally on the buy side). Depending on your broker, there may also be platform fees, clearing charges, or other small levies.

These costs might look “small per trade,” but F&O trading usually involves frequent entries and exits. When the number of trades increases, costs become a steady leak—like a bucket with a hole. Even if your strategy is close to break-even before costs, after costs it can become a losing strategy.

A major 2026 update you should be aware of is that the Union Budget 2026 announced an increase in STT on equity derivatives effective from April 1, 2026. The STT rate on futures was increased (from 0.02% to 0.05% of the traded value), and on options premium the rate was increased (from 0.1% to 0.15%). This means active traders will feel higher friction on every trade, especially if they trade frequently.

What are the “hidden costs” people don’t talk about?

Hidden costs are not always written clearly in a charge sheet, but they hit your P&L.

The first hidden cost is the bid-ask spread. The price you buy at and the price you can immediately sell at are not the same. In liquid contracts it may be small, but in fast markets or less liquid strikes, it can be significant. If you trade repeatedly, you pay this spread again and again.

The second hidden cost is slippage. You might plan to buy at one price and end up buying higher (or sell lower) due to fast movement, gaps, or low liquidity. This is common around expiry, market openings, and news events.

The third hidden cost is execution emotion. Many traders buy late because they fear missing out and sell early because they fear losing. This is not a “psychology lecture”—it directly becomes a cost because you consistently enter at worse prices and exit before your edge plays out.

Why leverage makes F&O feel attractive—and dangerous

Leverage means you can control a large position with a smaller amount of money. This is like booking a huge ticket with a small advance payment. When it works, returns look impressive. But leverage does not amplify only profits; it amplifies mistakes, noise, and emotions.

In futures, leverage can turn a small market move into a big percentage loss on your margin. In options, leverage can make an option go from “cheap” to “zero” surprisingly quickly. Leverage also increases the chance that you will take bigger positions than your account can safely handle.

What is margin, and why do traders suddenly get margin calls?

Margin is the money you must keep in your account to hold certain derivatives positions. It’s a safety buffer required by the broker and exchange. When your position loses value, your available margin reduces. If it falls below required levels, the broker can ask you to add more funds, or they can square off (close) your position.

Margin calls feel “sudden” to beginners because they think their loss is limited to what they see on the screen at that moment. But in reality, margin requirements and mark-to-market losses can change quickly, especially during volatile markets.

Why do most retail traders lose money in F&O, even if they are smart?

This is the most important question, and the answer is not simply “lack of knowledge.” There are structural reasons.

First, F&O is a zero-sum game before costs and a negative-sum game after costs. For every winner, there is a loser, but the market also collects costs from everyone. So, on average, the crowd loses after considering trading costs.

Second, the time horizon of most retail traders is too short. Many trades are made in very short time frames, especially near expiry. In short horizons, randomness dominates skill. Even a good idea can fail because the market didn’t move “on time.”

Third, many traders rely on prediction rather than process. They focus on where the market will go, not on whether the odds and risk-reward make sense.

Fourth, risk management is often missing. Many traders risk too much on one trade, because the entry cost (like option premium) looks small, but the probability of repeated small losses is high.

Fifth, most people overtrade. A person who takes too many trades gives more opportunities for costs, mistakes, emotional decisions, and slippage to accumulate.

Is it true that “93% of traders lose”? What does that actually mean for you?

The number can feel shocking, so it’s important to interpret it correctly. It does not mean that every trade is a loss, or that making profit is impossible. It means that over a meaningful period, when you include costs and look at net results, most individual traders end up with negative outcomes.

Many traders have occasional big wins. Those wins are often shared publicly. But what is not shared are the many small losses, the frequent re-entries, and the long periods of drawdown. The end result is that the account balance tells the truth, not the screenshot.

“I will only do option buying.” Is that safer than futures?

Option buying can limit maximum loss to premium, but it can still be a high-loss habit because premium can decay quickly. When you buy options repeatedly, you are paying premium again and again. If you don’t have a strong edge—meaning a repeatable reason why you will win more than you lose—the math can slowly bleed your account.

Options are priced with probability already included. The market is not giving you a cheap deal by default. If the option is cheap, it often reflects low probability of profit.

Why does expiry day feel like a “trap day” for beginners?

Expiry compresses time. Option prices change rapidly, and theta decay (time decay) accelerates as expiry approaches. The same move that would have given profit earlier in the week might not be enough on expiry day.

Also, implied volatility can fall quickly after a move or after an event is over, causing option prices to drop even if the market moved in your direction. This is why beginners sometimes say, “Market went up but my call option still lost money.” That situation is not a scam; it’s how option pricing works.

Can a common person do F&O as a side income?

It’s possible for some people, but for most, it is not realistic in the way social media sells it. A stable side income requires stability in outcomes. F&O outcomes are highly variable, even for skilled traders.

Also, trading requires attention, discipline, and the ability to follow rules under stress. If your day job is demanding, your decision quality can drop. Many retail traders end up trading when they are tired or distracted, and that increases mistakes.

If you are looking for “fixed monthly income,” F&O is usually the wrong tool. Markets don’t pay salaries.

What role do emotions play in retail losses?

In F&O, emotions are not a small factor—they can be the deciding factor. Because leverage is high, small price movements can create strong emotional reactions. Fear makes you exit early. Greed makes you hold too long. Hope makes you average losses. Ego makes you revenge trade.

These behaviors are common because the human brain is wired to respond to risk and reward in ways that helped survival, not portfolio growth. The market environment triggers these instincts again and again.

Are tips, Telegram calls, and “sure-shot” strategies reliable?

Most tip-based trading fails because it removes context. Even if someone gives a correct direction, you still need the right entry price, position size, stop-loss discipline, and exit plan. Without those, a “correct call” can still become a loss.

Also, many tip providers show only their best trades. Some make money from selling subscriptions, not from trading. This creates a mismatch: their business is selling confidence, not managing risk.

What about strategies like selling options—doesn’t that win more often?

Option selling can have a higher win rate because you can profit if the market stays within a range. But the risk can be large when the market moves sharply. This is why option selling is not “easy money.” It can feel safe for many days, and then one violent move can wipe out weeks or months of profits.

In 2026, many brokers and educators highlight risk-managed option strategies, but risk-managed does not mean risk-free. If you don’t fully understand margin, volatility, and tail risk, option selling can become a sudden disaster.

What should you check before you even think about starting F&O?

Start by asking yourself why you want to trade F&O. If the reason is only “fast money,” you are walking into the market for the same reason most beginners walk in—and most of them walk out with losses.

If you still want to learn, treat it like a skill, not like a lottery. Learn how contracts work, how P&L is calculated, how charges apply, and how losses can compound. Most importantly, understand that consistent trading requires an edge, and an edge is rare.

Also, be honest about your risk capacity. If a loss would disturb your monthly household budget, you should not trade F&O with that money.

If you still want to participate, what is a realistic and safer approach?

A more realistic approach starts with education and slow exposure. Paper trading can help you understand behavior and pricing without financial damage. Once you move to real money, using very small position sizes helps you learn without risking your account.

Focus more on process than prediction. A good trader spends more time deciding when not to trade than finding a trade. Many profitable traders trade less, not more.

And if your primary goal is long-term wealth, understand that F&O is not the only path. For many households, disciplined investing in diversified instruments and controlling expenses creates better outcomes than high-frequency leveraged trading.

What F&O is best used for

F&O was originally designed as a risk management tool. It is powerful when used correctly, especially for hedging and structured strategies with clear risk limits. But when used as a shortcut to income, it becomes a high-risk activity that most retail participants are not prepared for.

The biggest danger is not only losing money. The bigger danger is building a habit of chasing losses, risking more than you planned, and confusing luck with skill.

If you remember only one thing, remember this: F&O can reward skill, but it punishes ignorance quickly. In 2026, with higher trading costs and stricter regulatory focus on retail risk, the market is giving clearer signals than ever. The smartest move for a common investor is not to ask, “How do I make quick profit in F&O?” but to ask, “Do I truly understand what I’m paying, what I’m risking, and the odds I’m accepting?”

If the answer is not a confident yes, the best trade you can make is the trade you don’t take.