With the hike in securities transaction tax (STT) on equity derivatives kicking in from Wednesday, market experts believe that volumes are likely to be hit by 10%-15% in the short term. The drop will primarily hurt fast-pace high-frequency traders whose strategies depend on thin spreads and frequent turnover.
Experts said that the impact is likely to be more on the volume of the futures segment due to the significant increase. The immediate impact will also be felt at the margin rather than in headline trading activity.
On February 1, Finance Minister Nirmala Sitharaman had proposed to increase the STT in equity derivatives in an attempt to curb the significant jump in speculative trading. The STT on futures was raised to 0.05% from 0.01%, that on options premium as well as exercise of options each to 0.15% from 0.1% and 0.125%, respectively.
“I believe that options volume could revive back, while the same in futures may continue to stay muted,” Ashish Nanda, chief digital business officer of Kotak Securities, said. The impact of STT hike on equity futures could be significant, while on options it is still reasonable, he said.
Scalpers and High-Frequency Traders
At the current price (Nifty 50 – 22,800 futures), the contract will now cost ₹741. “Traders require close to 12 points (movement in the spot index) to cover this cost. At earlier rates, it would have been just 4.6 points,” Vipin Kumar, assistant vice president of equity research and head of derivatives and technical at Globe Capital Market said.
Derivatives experts said that rapid-turnover traders such as scalpers and jobbers will be the worst hit due to the hike in STT. However, the new tax is unlikely to change the behaviour of institutional players as F&O remains their key tool for hedging and risk management rather than directional bets.
Transaction costs generally include brokerage, exchange charges, and taxes. The overall cost of trade is also expected to see a noticeable uptick, particularly in options trading where STT is already a meaningful component of total costs.
“In practical terms, the increase may appear small on a per-trade basis, but when compounded over high turnover strategies, it can have a visible impact on net returns,” Puneet Sharma, chief executive officer and fund manager at Whitespace Alpha, said. This is why traders, who rely heavily on intraday or expiry-based strategies, are likely to feel the impact more than positional traders, he added.
Speculative Retail Trading
In FY25, over 90% of individual traders in equity derivatives incurred net losses, a rise of 41% on year at ₹1.05 lakh crore, as per a report by the markets regulator. Average losses per individual trader increased 27% to ₹110,069 in FY25 from a year ago.
The Securities and Exchange Board of India (Sebi) has been bringing measures to lower retail participation in F&O. In October 2024, the markets regulator increased index derivative contract value to at least ₹15 lakh and also revised lot sizes. It also discontinued weekly options for multiple indices, including Nifty Bank and Nifty Financial Services, restricting weekly expiry to one index per stock exchange.
Since then, the derivatives trading volume has fallen consistently. Between October 2024 and February 2026, the average turnover of NSE index futures fell 21% and that of stocks futures declined around 11.5%. Also, the average turnover premium of NSE index options is down 6%, but that of stocks options rose around 9%.