Finance1 min read

STT hikes backfire? Zerodha's Nithin Kamath says traders are moving to ‘riskier options trades’

By · Published by Everything Blog

In short

Increased transaction charges and expanded contract sizes have forced nearly 90% of derivative activity into options trading. Zerodha co-founder Nithin Kamath warned that weekly contract expiries have essentially converted regular trading into zero-day speculation, despite only a tenth of option buyers achieving profitability. He also noted that these combined pressures are driving retail investors toward unregulated crypto platforms offering leverage up to 300 times.

Key points

  • Regulatory cost increases on futures have pushed the vast majority of retail derivatives…: Regulatory cost increases on futures have pushed the vast majority of retail derivatives volume into low-premium options.
  • The proliferation of weekly expiries has shortened retail speculative timeframes down to…: The proliferation of weekly expiries has shortened retail speculative timeframes down to zero-day options trading.
  • Restrictive domestic trading rules risk driving local capital toward unlicensed offshore…: Restrictive domestic trading rules risk driving local capital toward unlicensed offshore crypto derivative providers during market downturns.

Sources checked by our analysis pipeline: 1

Zerodha co-founder Nithin Kamath, in his latest tweet, warned how higher securities transaction tax (STT) and other measures intended to curb futures and options (F&O) speculation may have led traders towards riskier trading behaviour.

“One of the unintended consequences of increasing STT and all the other measures to curb F&O speculation is that they may have pushed traders toward even riskier trading behaviour,” Kamath said in a post on X,

Kamath shared that approximately 50% of individual futures traders and 40% of option sellers on Zerodha were profitable, compared with just 10% of option buyers. He added that it was too early to assess the profitability of margin trading facility (MTF), given that it was a relatively new product.

According to Kamath, Indian markets had evolved significantly and called for careful consideration of the broader effects of regulatory and taxation changes.

"Indian markets are no longer a backwater, the recent bear phase notwithstanding. We need careful thinking about second- and third-order effects, and thoughtful regulatory design and calibration," he noted.

Kamath highlighted the difference in profitability across trading segments, pointing…

Finance

More in Finance