Risk Disclosure Document (RDD)

The Risk Disclosure Document (RDD) is a SEBI and exchange mandated disclosure that a stockbroker must give every client at account opening, setting out in plain terms the risks of trading and investing in securities and derivatives. It forms one annexure of the standardised account opening kit that every broker, including Zerodha , is required to deliver before a trading account can be activated.

The RDD is one of the oldest investor-protection instruments in the Indian market. It is not a marketing document and not a disclaimer the broker drafts at will. Its scope, its position in the account opening kit, and the obligation to obtain the client’s acknowledgement all trace to the SEBI (Stock Brokers) Regulations, 1992 and to exchange circulars that prescribe the exact set of documents a client must receive. The document exists so that no client can later claim ignorance of the structural risks that trading carries, and so that the broker holds a timestamped record proving the disclosure was made.

Since 1 July 2023 the RDD framework has been joined by a separate, sharper instrument: the SEBI mandated F&O risk disclosure, built on the regulator’s own study of how individual derivative traders actually fare. That disclosure carries the now widely cited finding that 9 out of 10 individual traders in equity futures and options lost money. This article covers the statutory basis of the RDD, what its annexures contain, the F&O risk disclosure and its underlying study, and what the client acknowledges by signing.

Statutory basis

The obligation to disclose risk and to issue a defined set of account opening documents sits in two layers of the regulatory framework.

The first layer is the SEBI (Stock Brokers) Regulations, 1992 . Schedule II of those regulations, the Code of Conduct for stockbrokers, places a duty on the broker to deal fairly with the client and to make the client aware of the terms on which business is done. The format and the mandatory documents are then specified by SEBI circulars and by the recognised exchanges, the National Stock Exchange and the Bombay Stock Exchange , through their member circulars. SEBI consolidated the account opening requirements in its standardised documents for the broker-client relationship, the same body of rules that also governs the rights and obligations document and the Most Important Terms and Conditions .

The second layer is the exchange-level standardisation. The exchanges prescribe the exact annexures, their numbering, and the language of the RDD, so that a client opening an account with any broker receives the same core disclosure. This is why the RDD reads almost identically across Zerodha , other discount brokers, and full-service brokers. The standardisation is deliberate: SEBI wanted a floor of disclosure that does not vary by how aggressive or how conservative a particular broker chooses to be.

The RDD is mandatory. A broker cannot activate a trading account without delivering the document and obtaining acknowledgement. Failure to issue the prescribed documents is an inspection and enforcement matter, examined in SEBI and exchange inspections of member firms.

What the RDD and its annexures contain

In practice the RDD is not a single page but a named annexure inside the wider account opening kit. At Zerodha the kit is delivered with annexures lettered and numbered to match the SEBI and exchange template. The set a resident individual receives includes the following.

The RDD proper, the equity and commodity annexures, discloses the categories of risk a client takes on by trading through a stockbroker. The core disclosures fall into a few groups.

Basis of trading and price risk

The RDD states plainly that the value of securities can fall as well as rise, that past performance does not predict future returns, and that a client can lose part or all of the capital committed. For derivatives it sets out that high leverage works in both directions, so that a small adverse move in the underlying can wipe out the margin posted and create a liability larger than the amount first deposited.

Risk of derivatives

The derivatives section is the sharpest part of the RDD. It discloses the unlimited loss potential of certain positions, the daily mark-to-market mechanic that can trigger margin calls, and the risk that a position is squared off by the broker when margin falls short. It separates the risk of buying options, where loss is capped at the premium paid, from the risk of writing or selling options and trading futures and options , where loss is not capped. This is the disclosure that the 2023 F&O risk disclosure later reinforced with hard data.

System and execution risk

The RDD discloses operational risks that sit outside price movement: a breakdown in the link between the client, the broker and the exchange, a technical failure that may cause erroneous or delayed orders, and unforeseen events that interrupt trading. It makes clear that the client bears the consequence of orders that the client placed, even where market conditions moved against them between placement and execution.

Liquidity, settlement and scrip-specific risk

For thinly traded scrips and for securities placed under surveillance, such as those in the additional surveillance and graded surveillance measure frameworks or the trade-to-trade segment , the disclosure flags wider spreads, the difficulty of exiting at a chosen price, and the settlement obligations that follow each trade. Settlement risk ties directly into the T+1 settlement cycle and the obligations recorded on the client’s contract note .

The F&O risk disclosure

The most consequential addition to the RDD framework in recent years is the SEBI mandated risk disclosure for the equity futures and options segment. SEBI introduced it through circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/73, dated 19 May 2023, with effect from 1 July 2023. The circular requires every stockbroker and the exchanges to display a standardised set of disclosures wherever they solicit or describe F&O trading, and to link to the SEBI study that the disclosures summarise.

The disclosure rests on a SEBI study released on 25 January 2023, titled “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”. The study sampled individual clients across the top 10 stockbrokers, a set that accounted for about 67 per cent of overall individual client turnover in the equity F&O segment in FY2021-22, and tracked their net outcomes over the three financial years FY2018-19 to FY2021-22.

The findings the disclosure draws on are specific:

• 9 out of 10 individual traders in the equity F&O segment, that is about 89 per cent, incurred net trading losses over the period studied.
• Loss makers averaged a net trading loss close to Rs 50,000 in FY2021-22, before transaction costs.
• The transaction costs that loss makers also bore added a further amount on top of their trading losses, so the all-in loss was larger than the trading loss alone.
• Even among the small minority who made a net trading profit, a meaningful share of that profit was eroded by transaction costs.
• The number of individual traders in the equity F&O segment rose more than 500 per cent in FY2021-22 against FY2018-19, and 98 per cent of them traded options.

The mandated language requires brokers to state, in the disclosure shown to clients, that 9 out of 10 individual traders in equity F&O incurred net losses, to quote the average loss figure, to note that transaction costs add to that loss, and to direct the reader to the SEBI study itself. The wording is fixed by the circular so that brokers cannot soften it. A fuller treatment sits in the dedicated entry on the SEBI 90 per cent retail F&O loss study , and the broader disclosure machinery is covered in SEBI broker risk disclosure norms .

This disclosure is distinct from the one-time RDD. It is re-acknowledged by F&O clients each financial year, and a fresh disclosure follows any material change, which is how the 2023 statistics entered the flow in the first place. SEBI later refreshed the underlying numbers: subsequent studies found the loss rate among individual derivative traders had stayed near the same level, and a 2024 follow-up extended the analysis to intraday equity-cash traders.

What the client acknowledges

By accepting the account opening kit and the RDD, the client makes a set of specific acknowledgements that the broker records and timestamps.

The client confirms having received and read the Risk Disclosure Document and its annexures, having understood the basis of trading set out in the rights and obligations document , and having understood the risks of the segments for which the account is being opened. For an F&O-enabled account the client separately acknowledges the F&O risk disclosure, including the loss statistics, before futures and options are activated. SEBI also requires income proof for derivative activation, so that the broker can judge whether the client has the financial capacity to bear the disclosed risk.

The acknowledgement is not a formality the broker can skip. SEBI’s framework requires that the disclosure be displayed in full rather than summarised, that the client take an explicit action to acknowledge it, such as a checkbox, a click, or an OTP, and that the timestamped acknowledgement be stored and made available for audit. At Zerodha , the F&O activation flow on Kite carries the document download, a read-receipt requirement, and OTP-confirmed acknowledgement, and the mechanics of that flow are set out in SEBI broker risk disclosure norms .

The legal effect of the acknowledgement is that the client cannot later claim to have been unaware of the structural risks the document discloses. It does not transfer the broker’s own duties to the client; the broker still owes the duties of fair dealing in the Code of Conduct and the contractual duties in the rights and obligations document. What it does is fix, at a point in time, that the disclosure was made and received.

How a Zerodha client receives the RDD

A client opening an account with Zerodha receives the RDD as part of the account opening kit , emailed to the registered email address at account opening. The equity and commodity RDD annexures sit alongside the rights and obligations document , the policies and procedures, the guidance note, and the Most Important Terms and Conditions . A client who wants a hard copy can raise a support ticket to request one, or download the kit from the account section.

The F&O risk disclosure is surfaced separately, before futures and options trading is enabled. Because the income-proof requirement for derivatives sits in the same flow, a client who opens an account for equity delivery alone will see the RDD but not yet the F&O activation disclosure; that appears when the client later seeks to enable derivatives.

The RDD interacts with the documents a client uses day to day. The risks it discloses become concrete on the contract note that records each trade and its charges, on the Console funds statement that shows settlement debits and credits, and in the quarterly running account settlement of idle funds. The disclosure is the front end; those reports are where the disclosed risks and obligations are realised.

See also

• SEBI broker risk disclosure norms
• SEBI 90 per cent retail F&O traders lose money study
• Most Important Terms and Conditions (MITC)
• Electronic Contract Note (ECN)
• Console contract notes
• Contract note
• Rights and obligations document
• Account opening kit (Zerodha)
• SEBI (Stock Brokers) Regulations, 1992
• Trading account
• Futures and options
• SEBI F&O entry barrier rules 2024
• SPAN and exposure margin on Kite
• ASM and GSM frameworks explained
• Trade-to-trade segment rules
• T+1 settlement cycle
• Quarterly running account settlement
• Console funds statement
• Margin trading facility
• Investor charter (SEBI)
• Investor grievance escalation matrix
• SEBI SCORES
• SEBI
• SEBI Investment Management Department
• Zerodha
• Zerodha Console
• Kite (Zerodha)
• Zerodha Broking Limited
• National Stock Exchange
• Bombay Stock Exchange
• How to complete Zerodha KYC online

External references

• SEBI circulars
• SEBI investor education on derivatives
• NSE India member compliance
• Zerodha support: Risk Disclosure Document
• SCORES SEBI grievance portal

References

1. SEBI (Stock Brokers) Regulations, 1992, Schedule II Code of Conduct, and Regulation on issuance of the contract note and account opening documents.
2. SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/73, dated 19 May 2023, “Risk disclosure with respect to trading by individual traders in Equity Futures and Options Segment”, effective 1 July 2023.
3. SEBI study dated 25 January 2023, “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”.
4. NSE and BSE member circulars prescribing the standardised account opening kit and Risk Disclosure Document annexures.
5. Zerodha Support, “What is the Risk Disclosure Document (RDD), equity and commodity annexure documents?”, support.zerodha.com.