Retail Investors Turn Away From Derivatives to Broker-Funded Stock Bets Amid Higher Costs

Retail and wealthy investors are gradually moving away from derivatives trading and turning to broker-funded stock purchases as higher costs and tighter regulations make derivatives less attractive. The industry-wide margin trading facility book on the National Stock Exchange has surged 52% from a year ago to 1.51 trillion rupees as of September-end, even as trading activity in index and stock futures has slowed sharply. Shares traded on the NSE accounted for 95% of the industry-wide MTF book, with those on BSE accounting for the rest.

Market Shifts

Brokerages such as Angel One, Groww and HDFC Securities say more clients are choosing leveraged cash-market positions, which offer a simpler alternative to futures contracts and avoid the hassle of mandatory expiry-day rollovers. The lending rate is an annualized 9 to 12% and up to 14% in certain cases. Most brokers fund 60 to 70% of the margin required to buy a stock, with the client covering 30 to 40%. Average daily turnover in index futures fell over 30% year-on-year to 15,578 crore rupees in September, while stock futures turnover dropped below 1 trillion rupees after falling 14% from a year ago and 19% from June.

Broker Reactions

Angel One saw its MTF book grow to 8,210 crore rupees by September-end, up 14% from June and 37% from a year earlier, while adding 72,000 MTF clients. At Groww, the MTF book increased 15% from June and 2.6 times from a year ago to 4,351 crore rupees. Dinesh Thakkar, chairman and managing director at Angel One, noted that higher minimum derivatives contract sizes and transaction taxes have altered the economics of derivatives trading. Dhiraj Relli, managing director and chief executive officer of HDFC Securities, added that investors are exploring leveraged equity positions without the complexities of futures expiry.

Context

Margin trading facilities allow investors to buy shares by borrowing a portion of the funds from their brokers, using their own funds as a security deposit. This market shift highlights how changing regulatory fees and contract rules can directly alter retail trading habits across major Indian exchanges.