What is F&O Trading?
Understanding Futures and Options — India's most traded derivatives
What are Derivatives?
Derivatives are financial instruments whose value is derived from an underlying asset — like a stock, index, or commodity. Futures and Options (F&O) are the two main types of exchange-traded derivatives in India.
Futures
A futures contract is an obligation to buy or sell an asset at a predetermined price on a specific future date. Both buyer and seller are obligated to fulfill the contract at expiry.
Options
An option gives the buyer the right (not obligation) to buy or sell at a specific price. The buyer pays a premium for this right.
- Call Option (CE): Right to buy at the strike price
- Put Option (PE): Right to sell at the strike price
- Premium: The price paid for buying an option
- Strike Price: The price at which the option can be exercised
- Expiry: The date when the option contract ends
Key Differences
| Feature | Futures | Options |
|---|---|---|
| Obligation | Both parties obligated | Buyer has right, not obligation |
| Risk | Unlimited for both | Limited for buyer (premium paid) |
| Premium | No premium (margin required) | Buyer pays premium |
| Profit potential | Unlimited | Unlimited for buyer, limited for seller |
Risk Warning
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