Futures and Options Trading (FnO)

Ans.Derivatives are financial contracts derived from other financial instruments e.g. stocks, currencies, commodities. Derivatives instruments have a fixed expiry date known at the time of signing the contract. Derivatives trading is popular among traders for the speculative returns they can expect in fixed and short time period. Derivatives trading also involves leverage with potential to make money with a small amount paid upfront.

Ans: F&O or Futures and Options contracts are two main types of derivatives contracts in the market. In Futures trading, you can buy or sell an underlying security at a future date at a specified price. Both buyer and seller are obligated to fulfill the terms of the contract before the future expiry date. Options trading gives the buyer an ‘option’ but not an obligation to buy or sell a security at a future date. The Option Writer is the seller in the contact and obligated to sell the security as per terms. The buyer pays a premium to the seller to possess the buy/sell option. The price of underlying security is known as strike price.

Ans: Yes, anyone can trade in derivatives. You need to have a demat and trading account with F&O trading facility activated. You must consider your risk appetite, financial goals and understand the risks involved in derivatives trading before you start investing.

Ans: There are a few pointer you can look at while choosing a F&O stock: High liquidity: Since F&O contracts are short term in nature, it is best to enter contracts in stocks that are widely traded with high liquidity so that you can enter or exit positions easily without getting stuck. Volatility: F&O contracts are not for long term investing but carry finite time frame. F&O trading is based on predicting future movement of a security. Higher the volatility in an instrument, higher the chances of making speculative returns. NSE and BSE comes out with a list of stocks on F&O Ban List every day, ensure you do not trade in stocks that are part of banned list.

Ans: Not all stocks have F&O derivatives, you can check the NSE and BSE website for a list of stocks available in the F & O segment. Your broker too may have the list of stocks on their website

Ans: Derivatives is an umbrella financial instrument whose value is derived from an underlying security. There are different categories of derivatives contracts e.g. Futures, Options, Swaps and Forward contracts. F&O i.e. Futures and Options is one type of derivative instrument and one of the popular categories to trade.

Ans: Trading hours for NSE F&O segment is 9:15 am - 3:30 pm. For NSE & BSE Currency Derivatives, the trading hours are 9:00 am - 5:00 pm. Above trading hours are Mon-Fri (except holidays declared by exchange) For MCX, the trade hours are: 10:00 am - 11:30 pm (April to October). 10:00 am - 11:55 pm (November to March) Saturdays, the trading hours are: 10:00 am to 2:00 pm

Ans: Options trading has attracted a fair share of volumes off late and there are strategies one can employ for trading. For a beginner it is best to start small, trade regularly, learn about the risks associated with options and basics of options trades. Since the options market is short term and highly volatile, it provides an opportunity for traders to earn in a short period. It also involves risk of loss of capital especially in leveraged trades.

Ans: Beginners shy away from options trading due to inherent risks, short term nature of contracts and high volatility. However, beginners looking to trade in options can start small with a single lot, gather experience, learn about various trading strategies and over a period of time build their knowledge about options trades.

Ans: Options are traded in lot sizes which vary for different stocks. For buying options you need to have the premium amount payable for buying contracts and for writing options you are required to maintain a margin in your account as per broker and regulator’s requirements.

Ans: Trading in futures and options is simple with Rupeezy: Open a demat and trading account by clicking on ‘Open a Demat Account’ tab. Add your email, phone no, Confirm OTP Select segment as Equity, Currency, Commodity & F&O Upload your documents PAN, Aadhar Upload Income proof for derivatives After e-authentication, your account will be ready to login and trade.

Ans: Futures and Options both are derivative contracts based on an underlying asset’s value in future. The difference is, in a futures contract the buyer or seller has the right to buy or sell the security at a future date at the price specified in the contract, before the contract expires. In an options contract, the buyer or seller has the right but not the obligation to buy or sell the security at a future date at specified price in contract. Investors and traders use futures and options to cover risk as well as profit from price movement speculation. In a futures contract, the writer is required to pay a margin to the broker as a percentage of total futures quantity purchased. In an options contract, the writer needs to pay a premium while entering the contract. The risk factor is lower in an options contract, since the risk is limited to the premium paid by the options writer. The options contract gives a choice to the holder to not exercise the option in case the price movement is not as per expectation. The risk is higher in futures contracts as the holder has to take a call beforehand and exercise the contract on a specified date.

Ans: Futures are of one type only without much variation in type of contract. Options contracts are of two types depending on the different views on future price on security: Call Option: Call Option gives the holder the right to buy the underlying security at specified price on or before the expiration date of the contract. Call option is written when the trader expects the price of asset to increase in the near future. Put Option: Put option gives the holder the option to sell the security at specific price on or before the contract export date. The options seller expects the price of security to fall in the near future.

Ans:The participants in derivatives market can be categorised on the basis of their trading behaviour: Hedgers: Hedgers are traders looking to de-risk their portfolios from unexpected prie movements. Hence they take the exact opposite position as their holding to hedge the risk from adverse price fluctuations. Speculators: Speculators are high risk takers who take speculative calls in the market to profit from the risk and price movements. They often take opposite position on price movements compared to hedgers, thus creating the market of buyers and sellers with opposing views.

Ans:You can furnish below documents as financial proof: Latest Income Tax Return Latest six month bank statement Salary slip Latest six month demat account statement

Ans:There can be a penalty levied in case there is margin shortfall in a futures trading account. The penalty is applied to positions with insufficient margins as a percentage of shortfall as per SEBI regulation.