A recent SEBI analysis shows proprietary trading desks dominated India's equity derivatives market in FY26 with ₹44,483 crore in gross profits. While institutional investors saw steep profit declines, individual traders recorded net losses of ₹91,685 crore. The data highlights the increasing dominance of algorithmic strategies in the derivatives segment.
A new analysis by the Securities and Exchange Board of India (SEBI) has shed light on the performance dynamics of India’s equity derivatives market during fiscal year 2026. The findings reveal a significant divergence in profitability between professional proprietary trading desks—firms trading with their own capital—and other market participants.
Proprietary trading desks proved to be the most resilient segment, recording gross trading profits of ₹44,483 crore, a marginal 3% decline compared to the previous year. In contrast, institutional players faced substantial pressure. Foreign Portfolio Investors (FPIs) saw their gross profits plunge by 55% to ₹13,896 crore, while mutual funds experienced a 54% drop, with profits falling to ₹2,595 crore.
The Role of Algorithmic Trading
The study points to a clear trend in how these profits were generated: technology. SEBI reported that 99% of the gross profits earned by both FPIs and proprietary traders came from entities using algorithmic trading. These systems, which use computer programs to execute trades automatically at high speeds, have become the standard for institutional-level participation in the derivatives segment.
However, this efficiency has led to high market concentration. The data shows that the profitable side of proprietary trading is not evenly distributed. The top 10 proprietary entities accounted for approximately 75% of the total gross profit within their category, suggesting that a small number of sophisticated, tech-driven firms capture the majority of gains.
Impact on Individual Traders
For individual traders, the market environment remained challenging throughout FY26. While the aggregate gross trading loss for individuals narrowed by 26% to ₹72,243 crore, the net loss after accounting for transaction costs stood at ₹91,685 crore. Data indicates that 87.7% of individual traders ended the fiscal year with net losses. The number of active individual derivatives traders also saw a decline, dropping by 18% to 8.75 million.
Market Risks and Monitorables
The findings highlight a growing divide between institutional or proprietary setups and retail participants. The heavy reliance on algorithmic systems creates a market environment where speed and technology often dictate success, leaving less room for manual trading strategies.
For investors and market observers, the concentration of profits among a few highly automated firms raises questions about market skewness and potential systemic reliance on specific trading technologies. Regulatory bodies often monitor such concentration levels to ensure market stability and prevent potential risks associated with automated trading glitches or excessive volatility. Moving forward, the industry will watch for any policy changes or regulatory scrutiny regarding the role of algorithms, bank lending practices to proprietary trading firms, and efforts to educate individual participants on the risks associated with derivatives trading.