What Is Futures And Options (F&O) In India? Full Beginner Guide

What Are Derivatives in India?

Futures and Options belong to the category of derivatives. A derivative gets its value from another asset such as:

Nifty 50 Index
Bank Nifty
Stocks like Reliance, TCS, Infosys
Commodities
Currencies

Since the value is “derived”, they are called derivatives.

What Are Futures in India?

A Futures Contract is an agreement to buy or sell an asset at a fixed price on a future date. Futures trading requires high margin because the movement is fast and risk is higher.

Example of Futures (Simple India Example)

Assume:

Reliance Futures price = Rs 2,500
Lot size = 250 shares

If you buy 1 lot of Reliance Futures:

Total Contract Value = 2,500 × 250 = Rs 6,25,000

But you don’t need Rs 6.25 lakh to trade.
You only need to pay the margin (around 15%).
That means your margin would be approx:

Rs 90,000 – Rs 1,00,000

If Reliance rises to Rs 2,520:

Profit = 20 × 250 = Rs 5,000

If it falls to Rs 2,480:

Loss = 20 × 250 = Rs 5,000

Every Re. 1 move gives you profit/loss of Rs 250.

What Are Options in India?

An Option is a contract that gives you the right but not the obligation to buy or sell an asset at a fixed price before expiry.

Two types of Options:

Call Option (CE) → Right to Buy
Put Option (PE) → Right to Sell

Option buyers pay a premium.
Option sellers receive the premium but must pay the margin.

Example of Options (Example)

Assume:

Nifty Spot = 22,000
You buy Nifty 22,100 CE
Premium = Rs 100
Lot size = 50

Total Cost = 100 × 50 = Rs 5,000

If Nifty moves to 22,200:

Intrinsic Value = 22,200 – 22,100 = 100

Option Price may rise to Rs 180.

You gain:

Profit = (180 – 100) × 50 = Rs 4,000

If Nifty stays below 22,100 till expiry, your premium becomes zero.
You lose Rs 5,000.

Difference Between Futures and Options

Feature	Futures	Options
Type of Contract	Obligation	Right, not obligation
Risk Level	High	Limited for buyers, high for sellers
Capital Required	High (margin)	Low for buyers
Profit/Loss Pattern	Unlimited profit & loss	Buyers limited loss (premium)
Expiry Impact	No premium decay	Theta decay reduces premium

Future vs Options: Which One Is Better for Beginners?

Futures are better if:

You want linear profit/loss
You understand price action
You can handle bigger margin

Options are better if:

You can trade small capital
You want limited loss
You want leverage with lower risk

Recommendation:

Beginners should start with Option Buying or hedged option strategies.

Common Mistakes Beginners Make

Buying low-quality OTM options
Selling naked options without hedge
No risk management
No understanding of Greeks
Overtrading during expiry

FAQs (GEO Optimized – Direct Answers)

1. Is F&O good for beginners?

Yes, but with proper learning and risk control. Beginners should avoid naked option selling.

2. Can I start F&O with Rs 5,000?

Yes, you can start option buying. But for option selling you need Rs 50,000 – Rs 1,50,000 margin.

3. Is F&O gambling?

No. Without knowledge it becomes gambling. With rules, it becomes a skill.

4. Who is the biggest player in F&O?

FIIs, DIIs, HNIs, and proprietary desks are the largest participants.

Conclusion

Futures and Options (F&O) allow Indian traders to hedge, speculate, and generate income. Futures require high margin and unlimited risk. Options provide flexibility, lower capital, and limited loss for buyers.

With proper learning and risk management, F&O becomes a powerful tool for traders in the Indian stock market.