What You Need to Know Before Trading F&O in the Share Market?


There are numerous ways through which you can Invest and trade your money in the stock market. Some of the common trading products include equity, stocks, futures and options, etc.

While equity trading is relatively more common among new and seasoned traders, futures and options (F&O) require more technical knowledge and understanding. Thus, before you begin trading F&O in the share market, here is a blog with things that you must know.

Understanding F&O Basics

Futures and Options are a type of stock derivatives trading that derive their values from assets like stocks, commodities, ETFs, etc.  They are a form of contract signed between buyers and sellers that protect money from market fluctuations and earn profits from these fluctuations..

These assets are bought and sold at a predefined price on a specific date, also known as the expiry date. This stock market product is made of two distinctive products that function differently from each other.

What You Need to Know Before Trading F&O in the Share Market?

The Mechanics of F&O Trading

Future Contracts:

These are agreements between a buyer and seller to buy or sell an asset (stocks, commodities and bonds) at a set price at a specified time and date in the future.

Options Contracts:

These contracts give you a choice to buy (also known as a call option) or sell (also known as a put option) some asset, without any obligation, at a set price on or before the expiration date. To proceed with any of the call options, you need to pay a fee or premium.

Moreover, these two options can be used to gain profits. For example, if you think prices will go up, a call option can be used. But if you think the prices will go down, the put option can be exercised.

In F&O trading, margins and leverage also play an important role. Margin is like a security deposit which is required to open and maintain the contract. On the other hand, leverage is buying or selling a larger number of shares than what you actually have in your trading account. It is the ratio of actual amount available for trade to the maximum limit with which you can trade.

Benefits of Trading in F&O

●       Hedging Against Market Volatility

By trading in F&O, you can protect your money from market fluctuations and daily price changes. It also helps you lock-in a price and restrict the losses.

●       Potential for High Returns

This type of trading also helps make significant profits if you are able to make the correct predictions about market movements. You can utilise features like leverage and earn larger profits with small investments.

●       Strategic Advantages Over Spot Trading

It offers more strategies than regular trading. You can use futures and options to predict if the market is going up, down or stay the same. This gives you more ways to gain profit and reduce risk.

Regulatory Aspects of F&O Trading

The maintenance of fairness and security of such derivatives contracts is regulated by the SEBI and clearing houses: National Securities Clearing Corporation Limited (NSCCL) and Indian Clearing Corporation Limited (ICCL). They also set rules and regulations and monitor the clearing and settlement of such contracts.

To maintain market stability, regulatory actions are taken by the SEBI, such as an F&O trading ban, deactivation of trading accounts for noncompliance, etc. Other compliance requirements include:

  • Reporting of transactions
  • Providing period statements
  • Filing correct disclosures
  • Maintenance of minimum margin levels
  • Completing KYC procedures

Choosing the Right Broker for F&O Trading

To experience safety and transparency with F&O market trading, you must choose the right broker. But how to do that? Here are some factors to look for while choosing a broker:

  • Low brokerage fees
  • Advanced features like charting tools, etc.
  • Easy-to-understand UI for quick order execution
  • Access to real-time data
  • Reliable and trustworthy
  • Valid registration with SEBI and other compliances.

Practical Tips for F&O Traders

  • Since there are many options with F&O, develop a plan and follow your strategies so that your investments are profitable and liquid.
  • The market keeps fluctuating on a daily basis. To not let it affect your strategies, it is a must that you research and update your skills like technical analysis continuously.
  • There are many tools and resources that provide real-time data analysis of the market conditions. Use them to maximise your profit and upgrade yourself.


F&O trading requires thorough research and knowledge updates. It offers several benefits and opportunities to build strategies and use your skills. However, since it requires a lot of technical analysis and studying market movement, it is advised to proceed only after educating yourself. Start your well-informed F&O trading journey on a trustable online trading platform, and keep upgrading.

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