Speaking at the FOW Trading India conference on Wednesday, the vice president of trading operations at retail platform Zerodha, said a boom in retail volumes had been enabled by new technology.

“Retail participation in the derivatives space increased manifold post-Covid, although intraday trading activity in equities has always been an attractive sphere," Faisal Mohammad said on a pane. "Innovation in trading technologies increased in the last five years, leading to increased speculation and trading volumes.”

Sriram Krishnan, chief business development officer at the National Stock Exchange of India added that this activity had been spurred by the availability of short term options over that period.

“Demand for short-term or near expiry options has increased, driven by flexibility in risk management, lower option premiums and duration, overnight risk reduction and huge shift in market dynamics post-Covid.," Krishan said. "The segment has been witnessing higher participation from institutional investors, as higher turnover gives higher yields.”

In a report published in July, the Securities and Exchange Board of India (SEBI) said 86.4% of individuals suffered losses trading Indian options in the first quarter compared to 88.5% in the fourth quarter of last year when SEBI launched a set of rules designed to restrict index derivatives activity. Krishnan said the measures had driven product design at the exchange.

"We have seen excessive demand for index options, driven by speculation, at more than acceptable levels," he added. "The Indian regulator has thus rolled out some reforms. At the same time, we are trying to bring different products to facilitate trade in sound and transparent manner using robust technology.”

Elena Patimova, director of derivatives sales at Cboe Global Markets said the dominance of retail flow in the exchange's US S&P 500 Index (SPX) zero-day-to-expiry (0DTE) market had been helped by the exchange's education efforts.

“Retail investors accounted for nearly 90% of the SPX 0DTE options trading [in August]," Patimova said. "This is similar to what India has been witnessing in the options space. However, we aren’t worried about this because we help retail investors with healthy trading strategies through investor education. Basically, we train them on not losing their money. Investors know how to handle their risks.”

Speaking on the need for self-regulation in Indian derivatives markets, Mohammed said: “We believe regulatory intervention alone cannot help in achieving market stability. We encourage traders to adopt strategies like long-call/long-put which come with limited risk. Product diversity is the key for risk management. There should be enough guardrails in place to protect investors. Inexperienced retail traders should pursue less risky trades. On the other hand, interactive quizzes can help in creating investor awareness.”

SEBI in September proposed intraday position limits for equity index options as part of the wider derivative market reforms aimed at curbing excessive speculation and market manipulation.

“Prohibiting retail traders through regulation will only drive unhealthy speculation, as market participants see opportunity in making gains from restricted trades," Patimova said. "A stable market is one that encourages inclusive investor participation—retail and institutional. Investor education is the key.”

Speaking on the impact of SEBI’s latest consultations in the derivatives segment, Piyush Chamria, chief risk and compliance officer at Edelweiss, said: “Nothing has changed for us frankly. In fact, we are focusing on building robust technologies to ensure market stability and investor protection.”