Why traders are moving away from equity F&O to commodities? Nithin Kamath explains

In a post on X, Kamath highlighted the growing interest in commodity trading on the Multi Commodity Exchange (MCX), raising questions about whether heightened volatility in gold, silver, crude oil and natural gas is drawing traders away from equity derivatives.

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"The increase in the number of traders on MCX (commodities) is interesting," Kamath said.

According to the figures shared by him, the number of equity F&O traders declined from 1.06 crore in FY25 to 85 lakh in FY26, a fall of nearly 20%. During the same period, the number of commodity traders increased from 13 lakh to almost 21 lakh, representing a rise of about 62%.

The contrasting trends come as India's equity derivatives market faces tighter regulations aimed at curbing excessive speculation, particularly among retail investors.

Kamath believes the rise in commodity traders coincides with the growing popularity of options trading on MCX.

"I think this coincides with the growth of options trading on MCX," he said.

He also pointed to sharp price movements in major commodities as a possible reason for the increase in participation.

"I also wonder how much of this is because of the heightened volatility in commodities like crude, natural gas, gold, and silver, and brokers pushing commodity options more after equity markets close," Kamath said.

Unlike equity derivatives trading, which closes in the afternoon, MCX allows trading in several commodities until almost midnight. The extended trading hours give investors an opportunity to take positions based on developments in international markets after domestic equity markets have closed.

Gold and silver prices, in particular, are influenced by global economic developments, interest rate expectations and geopolitical uncertainty. Crude oil and natural gas prices are also sensitive to international supply disruptions and changes in demand.

Sharp movements in these commodities can create opportunities for short-term traders, although they also increase the risk of losses.

The increase in commodity participation comes at a time when India's equity derivatives market has undergone significant regulatory changes. The Securities and Exchange Board of India (Sebi) has introduced measures such as larger contract sizes and restrictions on weekly index derivatives expiries to address concerns over retail participation and trading losses.

Kamath has previously questioned whether higher securities transaction taxes and other measures to curb speculation could have unintended consequences.

In an October 28 post, he argued that higher transaction costs and margin requirements may have encouraged some traders to move towards riskier options strategies. He also noted that buying options requires a smaller upfront payment than trading futures or selling options, making them more accessible to retail participants.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.