India Markets
Indian F&O (Futures & Options)
How India's derivatives market works, who should trade it, and the risks most retail traders underestimate.
India has the world's largest derivatives market by number of contracts. Futures and Options on the NSE allow traders to speculate on price movements or hedge existing positions using leverage. However, SEBI data shows that 89% of individual F&O traders lose money — the majority losing more than ₹50,000 annually. This is a market that demands respect and education.
Futures: Obligation to Buy or Sell
A futures contract is an agreement to buy or sell an underlying asset at a specified price on a future date. Both buyer and seller are obligated to fulfil the contract.
- Nifty Futures: Contract to buy/sell Nifty 50 index at today's agreed price on expiry
- Lot size: 25 units (Nifty) — contract value ~₹5.75 lakh at Nifty 23,000
- Margin required: ~10-15% of contract value (SPAN + Exposure margin)
- Daily MTM settlement: Profits/losses credited/debited daily — not at expiry
- Expiry: Last Thursday of each month for monthly contracts; weekly for Nifty (Thursday)
Options: Right Without Obligation
An options buyer pays a premium for the right (not obligation) to buy (Call) or sell (Put) an underlying asset at a specific price before expiry.
- Call option: Right to BUY at the strike price — profits when underlying goes UP
- Put option: Right to SELL at the strike price — profits when underlying goes DOWN
- Premium: Maximum loss for option buyer is the premium paid
- Option seller (writer): Receives premium but has theoretically unlimited risk
- Greeks: Delta, Gamma, Theta, Vega — measure option sensitivity to various factors
SEBI's 2024 F&O Reforms
After studies showed massive retail losses, SEBI implemented significant changes to reduce speculative excess in the options market.
- Only one weekly options expiry per exchange: Nifty 50 (NSE) and Sensex (BSE) only
- Minimum contract value of ₹15 lakh: Increased lot sizes for most contracts
- Intraday monitoring of position limits: Real-time enforcement vs end-of-day
- Calendar spread margin benefit: Removed on expiry day to prevent last-day speculation
- Upfront collection of option premiums from buyers
⚠️ Important: F&O is a zero-sum game — every rupee a trader gains, another trader loses. Adding transaction costs means the aggregate of all traders is negative. Only trade F&O if you have a clear edge and treat it as a business.
Key Takeaways
- ✓89% of F&O retail traders lose money according to SEBI's own study — approach with extreme caution
- ✓Options buyers lose the entire premium if the view is wrong — size positions accordingly
- ✓Options selling (writing) generates regular income but carries unlimited or large loss potential
- ✓SEBI has restricted weekly expiries to Nifty and Sensex only as of 2024
- ✓Paper trade for at least 6 months before risking real capital in F&O
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