Fantasy Sports vs. Options Trading: Profit Potential Comparison


Fantasy Sports vs. Options Trading: Profit Potential Comparison

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In a recent study by SEBI for FY22, it was discovered that retail traders collectively suffered over 80% losses in their investments. Axis AMC’s analysis suggests that the odds of profiting in fantasy sports are superior to those in options trading.

The analysis reveals that in fantasy sports, the take rate is 15%, which means that for every Rs 100 invested by retail participants, they receive Rs 85 back. Conversely, in derivatives trading, only 15% of the investment returns to retail traders. SEBI’s study shows that in FY22, 90% of participants lost a staggering Rs 45,000 crore, while the remaining 10% managed to earn Rs 6,900 crore.

Despite these grim profit prospects, India has witnessed a surge in derivative traders and their trading volume. In India, derivative volumes are more than 400 times greater than the underlying cash market value, a substantial increase from just 3 times in 2010. This is in stark contrast to most markets where derivatives volumes range from 5-15 times that of the cash market. The total daily derivatives volume has reached over $4.3 trillion, roughly equivalent to 125% of the market capitalization of the underlying companies or more than 200% of their free float.

Axis AMC attributes the allure of derivatives to embedded leverage, where only a fraction of the notional value is required for transactions, amplifying potential gains and losses for participants. For instance, an index option provides an effective leverage of 500x on the expiry day, attracting retail traders. A Rs 2,000 option can provide exposure of Rs 10 lakh, but these investments are largely speculative, with retail traders holding options for an average of just 30 minutes.

Axis AMC further notes that changes in contract structures, combined with leverage and user-friendly interfaces in new-generation trading apps, have gamified the market. The number of active derivatives traders has increased eightfold, reaching 4 million, up from less than 0.5 million in 2019. In comparison, the cash market has seen a threefold growth, from 3 million in 2019 to 11 million in 2023. Derivatives contracts are available for 193 stocks and indices out of the over 5,000 firms listed in India.”


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