The Market Is Structured Against Retail Traders. Here Is How to Overcome It.
Your strategy looks profitable on paper. Your live account keeps losing. The reason is rarely your entries or your exits. It is market structure.
A strategy that looks profitable on paper keeps bleeding money in live markets. Trading more to recover losses only makes it worse. Meanwhile, proprietary desks and foreign investors pull tens of thousands of crores out of the same market where your account keeps shrinking.
These are not random outcomes. One idea connects all three. Once you understand it, you will never look at your trades, your backtest, or your capital the same way again. This report walks you through it step by step, with the numbers in motion.
Who actually makes money in F&O
Start with the data. SEBI's FY24 numbers tell the whole story in three lines. Watch where the money goes.
The same picture as a table, for the record:
| Participant | Gross P&L |
|---|---|
| Proprietary traders | +₹33,037 Cr |
| Foreign portfolio investors | +₹27,965 Cr |
| Individuals and others | −₹61,212 Cr |
This is not one bad year for retail. It repeats, year after year. It is the structural reality of the market. The natural question is what props and FPIs are doing that retail is not.
Almost all of it comes from algos
96 percent of proprietary trading profit in FY24 came from algorithmic trading. For FPIs, the figure was 97 percent. Non-algo profit was marginal for both.
Market making, not prediction
There are roughly a thousand prop and FII entities. On the other side sit crores of retail traders, each averaging close to nine hundred transactions a year. Together, retail generates crores of trades every single day, and props and FPIs are mostly the counterparty.
That tells you the model. Small profit per trade, spread across an enormous number of trades. A directional strategy works the opposite way: fewer, larger bets held long enough for a thesis to play out. The institutional pattern is high count and tiny edge per trade. That can only be one thing.
Market makers do not predict where the market is going. They sit on both sides of the order book and collect a fee on every transaction, in either direction.
They place limit orders to buy and sell at the same time. Every time you send a market order, a market maker's limit order is on the other side of it. They enable your transaction, and in return they collect a small fee. To see that fee, you need the bid-ask spread.
A limit order is an offer to trade only at a set price. It waits in the book until someone takes it. A market order says fill me now, at whatever price is available. The market maker posts the limit orders. You send the market order. That difference is where the fee hides.
What the bid-ask spread really costs
Every contract shows two prices. The bid is the highest price a buyer will pay. The ask is the lowest price a seller will accept. Suppose, for illustration, a Nifty option quotes a bid of ₹239.20 and an ask of ₹239.70. Watch what happens when you buy and then sell.
That ₹0.50 is the market maker's fee. Roughly 0.2% of the premium. You pay it on the way in, and again on the way out, on every single trade.
If you buy at market, you pay ₹239.70. If you immediately sell at market, you receive ₹239.20. That ₹0.50 gap is the fee you handed the market maker. It does not sound like much. But you pay it on the way in and again on the way out, on every single trade. It adds up fast.
Think of an airport forex counter. The open-market rate for a dollar might be ₹93.90. The counter sells it to you near ₹95 and buys it back near ₹89. You would never transact there ten times in a day. Yet in the market, most traders do exactly that, convinced more trades mean more opportunity. More trades just mean more spread paid to market makers, more brokerage, and more tax.
Why a profitable strategy still loses
Take a strategy that looks excellent on paper. Two lakh capital, one percent risk a day, a two-to-one reward, a sixty percent win rate, ten trades a day. On paper the gross profit is around four lakh a year. Now subtract the real costs, one layer at a time.
The breakdown, in words:
- Regulatory costs (brokerage, STT, transaction charges, GST, stamp duty): roughly ₹1,59,000 a year. Most traders account for this.
- Bid-ask spread at about 0.2 percent per trade: roughly ₹75,000 a year. Almost nobody accounts for this.
- Slippage at about 0.5 percent per trade: roughly ₹1,87,000 a year. The gap between the price you expect and the price you get, because the market moves while your order fills.
Total cost: about ₹4,21,000. Gross profit: ₹4,00,000. The extraordinary strategy is now a loss-making one. The reason is not bad entries. It is spread, slippage, and cost.
Why a small account cannot win
With one to two lakh of trading capital, the math simply does not clear. Fixed costs are large relative to the base, and they eat a disproportionate share of any profit. Even a genuinely good strategy struggles to survive that drag. Some strategies only start returning real profit above five lakh, and even then the right sequence is to invest for the long term first, pledge those holdings, and only then use F&O.
What to do about it
- Every backtest hides bid-ask spread, slippage, and regulatory cost. Add all three before you call a strategy profitable. Very few survive it.
- One to two lakh is not enough capital for F&O. Build long-term capital first.
- More trades is not more opportunity. Every extra trade is a donation to market makers, brokers, and the government. Survivors take fewer trades. Avoid scalping, intraday option buying, and over-trading.
- Treat F&O as a tool for hedging and income generation on a built-up portfolio, not as a speculation engine. The consistent winners in pure speculation are the brokers, props, exchange, and the government.
A mental model for survival
Most traders spend their time changing rules. A new indicator. A new entry signal. A new stop. The ones who last understand something deeper. Think in three layers, built from the ground up.
The ones who survive understand the structure and never break the principles.
The bid-ask spread is not a small detail. It is the mechanism through which the bulk of that ₹61,000 crore flows from retail to market makers, every single year.
Understanding this does not mean you should stop participating in markets. It means you should act less, know the true cost of every transaction, and build your wealth on structure you can actually win with. That is the whole idea behind holding many uncorrelated layers rather than chasing a sharper entry.