The Securities and Exchange Board of India (SEBI) recently tightened rules for equity futures and options (F&O) trading, aiming to curb excessive speculation and protect small investors. These new regulations, which began taking effect in November 2024 and continued in phases through April 2025, have prompted many retail traders to seek out new avenues for high-risk, high-reward opportunities. As a result, commodity derivatives, particularly gold and silver, are now seeing a significant surge in interest and trading volumes.[indianexpress+4]
SEBI Tightens F&O Rules to Protect Investors
SEBI's move to tighten F&O trading rules stemmed from deep concerns about retail investors losing substantial amounts of money. Studies showed that an alarming 89 to 91 percent of individual traders in the equity F&O segment incurred losses.The average loss for these traders was about Rs 1.1 lakh in fiscal year 2022.From April 2021 to March 2024, Indian individual traders collectively lost a staggering Rs 1.81 lakh crore in F&O trading, with only 7.2 percent reporting profits.[indianexpress+3]
The market regulator introduced a series of measures to address this problem. Starting November 20, 2024, SEBI increased the minimum contract size for index futures and options to Rs 15 lakh, up from the previous range of Rs 5 lakh to Rs 10 lakh.This change makes F&O trading less accessible for smaller retail investors, requiring more capital upfront.SEBI also rationalized weekly index derivatives products, allowing each exchange to offer contracts for only one benchmark index with weekly expiry.This aimed to simplify the market structure and reduce speculative frenzy often seen around multiple expiry days.[indianexpress+7]
Further regulations rolled out in early 2025. From February 1, 2025, SEBI mandated the upfront collection of option premiums from buyers.This rule prevents traders from taking excessive risks without actual funds, enforcing greater financial discipline.Additionally, the benefit of calendar spread treatment on expiry days was removed for expiring contracts starting February 1, 2025.This measure addresses the high risks associated with larger trading volumes and unpredictable price movements on expiry days.By April 1, 2025, exchanges also began monitoring position limits multiple times throughout the trading day, rather than just at the end of the day.This enhances transparency and accountability, ensuring traders do not exceed their risk thresholds.[risevestors+10]
Retail Traders Seek New Avenues
The stricter F&O rules had an immediate impact on retail participation. The number of unique individual traders in equity derivatives fell sharply from 61.4 lakh in Q1 of fiscal year 2025 to just 42.7 lakh in Q4 of the same fiscal year.Faced with higher entry barriers and increased costs in equity F&O, many speculative traders, often referred to as "punters," began looking for alternative markets.[indianexpress+1]
Commodity derivatives have emerged as the new preferred destination for these traders.Long considered volatile and less practical, commodities are now back in favor, driven by several factors. Gold and silver, in particular, have been hitting record highs, attracting significant interest.For example, silver prices surged past the Rs 4 lakh mark per kilogram for the first time in January 2026, driven by global anxiety and geopolitical risks.This surge contrasts with Indian equities, where the MSCI India index has shown more modest growth, up only 4% in USD terms over the past year, underperforming global peers.Foreign Portfolio Investors (FPIs) also withdrew around Rs 33,598 crore from Indian equities in January 2026 alone, further highlighting a shift in capital.[indiaipo+9]
Multi Commodity Exchange of India Ltd (MCX), the country's leading commodity derivatives platform, has been a major beneficiary of this shift.MCX reported a strong performance in Q3 of fiscal year 2026 (October-December 2025), with revenue from operations surging 121.3% year-on-year to Rs 666 crore.Its net profit jumped 150.6% year-on-year to Rs 401 crore for the same quarter.This robust growth was directly linked to increased trading volumes and heightened volatility in commodity prices, especially gold and silver.Brokers are now retooling their products and revenue streams to meet this renewed demand in the commodity segment.The extended trading hours for commodities, often until 9 PM, also offer different opportunities compared to equity markets that close at 3:30 PM.[tradebrains+14]
Market Impact and Future Outlook
SEBI's regulatory changes initially led to a noticeable decline in F&O volumes. In December 2024, the average daily trading value (ADTV) for index options fell by 42% on the National Stock Exchange (NSE) and 22% on the Bombay Stock Exchange (BSE) compared to the previous month.However, despite these measures, retail participation in F&O, particularly in index options, has not declined as much as regulators expected.In fact, newcomers pushed industry-wide equity options volumes in the December quarter of 2025 above levels seen before SEBI's curbs in October 2024.SEBI continues to monitor this activity closely and may consider further actions to ensure investor protection and systemic stability.[mastertrust+3]
The stricter rules have also created challenges for brokerage firms. Brokers now face increased margin requirements for traders, potential loss of clients who seek less restrictive markets, and a higher compliance burden to monitor positions in real-time.Analysts estimate that some brokers could see a revenue reduction of at least 20% due to these changes.[icicidirect+2]
While the focus has largely been on commodities, some traders are also exploring other regulated avenues. Forex trading, for instance, is legal in India through exchange-traded futures and options, although spot forex trading is restricted.Overall, SEBI's reforms aim to create a more stable and resilient derivatives ecosystem by curbing unchecked speculation and encouraging disciplined, risk-aware trading.The market continues to adapt, with retail investors demonstrating a persistent appetite for speculative trading, now increasingly channeled into commodity markets.[forexbrokers+5]
