Futures And Options

Futures and Options (F&O) collectively refers to the two primary categories of exchange-traded derivative instruments — futures contracts (which obligate both parties to a transaction at a future date and price) and options contracts (which give the buyer the right but not the obligation to transact) — that are used for hedging, speculation, and arbitrage in equity, currency, and commodity markets. In India, the F&O segment of NSE is one of the most active derivatives markets globally — with daily notional turnover routinely exceeding ₹500 lakh crore in equity derivatives, driven primarily by Nifty 50 and Bank Nifty weekly options. F&O trading requires SEBI approval and completion of mandatory knowledge assessment for retail participants, given the complexity and risk involved. The F&O market serves critical economic functions: it enables price discovery for underlying assets through forward pricing, allows risk transfer from those unwilling to bear risk (hedgers) to those willing to accept it (speculators), and improves market efficiency through arbitrage activity. SEBI's periodic studies on F&O trading outcomes — most recently the 2023-24 study showing that 93% of individual retail traders in equity F&O incurred losses — have prompted multiple regulatory interventions including higher minimum contract values, stricter margin requirements, and enhanced investor suitability norms. Despite these risks, F&O markets remain essential tools for institutional portfolio management and sophisticated risk hedging in India's capital markets ecosystem.