SEBI and Zerodha reports show that >90% of traders lose in options trading. Similar studies hold true for the US stock market, and by extension, crypto.
Trading options and futures is a zero-sum (actually negative-sum) game.
Someone goes long, someone goes short. Only one wins.
The winner takes the loser's money and the government, broker, and intermediaries take their cut in fees.
In 2023 alone, intermediaries in the Indian stock market made >$10 billion. That money leaves the system, turning a zero-sum game into a heavily negative-sum one.
So why do traders keep trading options? Futures? Leverage?
I believe people trade for:
- Adrenaline boost
- Fun of speculation + leverage
- Gambler's fallacy
- Martingale mentality
- Social status (to be part of the community)
- Low IQ
First-principles explanation
If I go to an amusement park, I feel thrill, some rides are near death experiences like a bungee drop from a 100-200ft height.
I accept the downside payoff of a very minor chance of death, minor chance of physical damage, dizziness, puking etc for the upside payoff of an adrenaline boost and having fun with friends.
And I even pay a cost for it.
Probably same is for people who parkour without a harness on top of 100 floor buildings. The upside is limited. The downside in case of a blackswan is huge, almost a liquidation event.
But people still do it.
Probably that is why they trade derivatives with leverage.