One thing is clear — hereafter trading in F&O segment and making profits is going to be more challenging for retail investors, given the new developments such as STT hike and non-availability of “do not exercise” option from next series.

A recent study by market regulator SEBI revealed that 89 per cent of individual traders (i.e. 9 out of 10 individual traders) in equity F&O segment incurred losses, with an average loss of ₹1.1 lakh during FY22, whereas 90 per cent of the active traders (indulged in trading frequently) incurred average losses of ₹1.25 lakh during the same period.

 Even active traders, who made trading profits, had to pay up to 50 per cent of their profits in transaction costs.

The government, on Friday, hiked the securities transaction tax (STT) by 23.52 per cent on the sale of options and 25 per cent on the sale of futures contracts. As per amendments to the Finance Bill 2023, STT on the sale of options has been hiked to ₹2,100 on a turnover of ₹1 crore against an earlier applicable levy of ₹1,700. On the sale of futures contracts, the STT has been hiked to ₹1,250 on ₹1 crore of turnover, against the earlier levy of ₹1,000.

Profit maths

According to Nikhil Kamath, Co-founder of online discount broking firm Zerodha, if an intra-day retail trader buys and sells 10 lots of Nifty futures, he has to pay ₹855 in STT or 1.7 points on each Nifty lot; if he trades 10 times a day, he has to capture 17 points of a Nifty move every day on STT alone.

This is outside of exchange charges such as stamp duty, GST, brokerage, and SEBI charges. Adding all this, he has to capture 30 points between Nifty volatility daily to break even (10 trades/day), he said.

Delivery danger

Another worry for traders would be the National Stock Exchange’s decision to scrap the ‘Do Not Exercise’ (DNE) facility in the F&O segment. The new rule will kick in from March 28, NSE’s circular said.

This means retail traders will be under pressure to square off their position ahead of expiry and cannot wait till the last minute. If they fail to do and the options turn in-the-money by a narrow margin, it will have to be settled by giving or taking delivery of shares, thus adding to their costs.

Besides, traders may have to square off in a hurry and constantly monitor their position, especially on the expiry day, which will not only escalate their transaction costs and rob potential profits, but also impact their health too.