Determinants of success in the equity derivatives market: An empirical study

Equity Derivatives is gaining huge popularity among the Indian retail traders. Derivatives are high leveraged instruments that lure participants who desire to make quick profits. Derivatives are mainly a risk management instrument but it is widely used as a speculative instrument. These instruments are like a doubled edged sword leading to extraordinary profits/losses. It is not easy to be a successful derivatives trader; in reality literature reveals that less than 1 percent of day traders beat the fixed deposit interest rates over a period of 3 years. Hence, it is crucial to study the factors that determine success in the equity derivatives market.

The study adopted survey based method and data has been collected from 382 active equity derivative traders in Bengaluru city in India. Structural Equation Modelling (SEM) was used to construct and test a model of factors to accomplish the objective.

The result of the study reveal that 59 percent of the variance in Trading Success in the derivatives market is significantly determined by four factors such as the trader's knowledge about the market, his trading behaviour, risk management skills and emotional control. Whereas factors such as tech-savviness, social interaction and personal habits do not have a significant influence.

The study provides unique insights to the derivative traders to get positive return in the market after analysing the various factors. Also, this study helps the academicians in understanding the major factors that determine success in the derivatives market.