India has witnessed a sharp rise in the F&O market trading in the past few months. Traders have lost crores of rupees in trading in the F&O market. This segment is taking away the hard earned money of the retail investors. The reason for the huge lost is retail investors are attracted by a lure of huge and early profit in trading in Future and Options which wiped out their balance in a few sessions.

So are you also the one who trades in Future and Options and have lost a bulk amount?

Then this article is for you!

Futures & Options Strategies

Table of Contents

  • What is F&O
  • HOw to trade in F&O
  • Why did traders lose huge amounts in F&O trading?
  • Indian F&O market
  • Call and Put Options
  • Tax on Profits from F&O
  • Types of F&O Market
  • Expiry Date


What is F&O?

F&O or Future and Options is the segment in the stock market where traders predict the price movement of a particular stock or indices and allow the dealer to buy or sell the underline stock/indices in the future and options market.

What is F&O?


Future is a derivative contract where the trader/investor enters into an agreement to buy/sell a particular stock on a specific price on some specified future date. This price is based on the investor’s prediction about the stock or the market. Here it becomes the obligation of the investor to execute the entered contract on the specified future date.


Options is also a derivative contract where the buyer of the option has an option but not an obligation to buy and sell a particular stock/index’s option any time before the expiration of the contract. Here the buyer is not obliged to execute the contract like a future contract.  

How to trade in F&O

Trading in the F & O segment requires knowledge and prediction of the company and the market. Here, loss is not limited to the invested amount like the cash segment. Loss can be unlimited based on your position. 

Why did traders lose huge amounts in F&O trading?

Traders or the newly entered retail investors look at F & O as an easy and effortless way to earn profits from the market. But it is the wrong assumption that wipes out their hard earned income from their hands in a short time. Market always pays off to those who have the knowledge, experience and patience. Lure may reward you some profits in the starting but it will take-out all your earnings in single trade. Without understating, learning and knowledge of F&O segment, retail investor puts their livelihood on bet in F&O trading which cost them lost high and bulk amount.

As every coin has two side, F&O has both pros and cons.

Benefits of trading in F&O

  • F&O allows you to trade with margin. Where you can trade with the amount you don’t have in your trading account.
  • Offers high returns as compared to cash segment.
  • Options allows you an option to execute the contract or not.
  • Allows you to test your prediction and gain knowledge of stock/market movement.

Cons of trading in F&O

  • F&O trading involves high risk as compared to the cash equity segment.
  • Time limit. Unlike the cash market F&O does allow traders to keep their position open for a longer period. Traders are required to square off their positions on or before the expiration period.
  • High brokerage. Trading in the future involves higher brokerage as compared to other segments of the market.
How to trade in F&O

Indian F&O market

In India youngsters have become very fond of trading in derivatives or F&O markets. As this attracts them to earn high returns with less investment in a shorter time. 

As per the reports of the SEBI (Security and Exchange Board of India) every 9 out of 10 individual traders losses their money in future and options segment with an average loss of Rs. 1.1 lakh during FY 2022. Further, Individual traders of the age group 30-40 years are the highest participants in the F & O segment.

Call and Put 

Under option trading, the two options are call and put. Call option gives you a right to buy a particular share, index whereas Put option gives you a right to sell the index, stock. A call buyer has a right to buy the underlying at a price he has but the right. The put buyer has a right to sell the underlying at a price for which he has bought the right. Both the call and put option buyer has to pay a premium to buy this rights, which is called option premium. The right expires on a specified future date. The Indian market has a weekly expiry for each option series.

Tax on profits from F&O segment

F&O income or loss is covered under the head Business and Profession of Income Tax Act. F&O is a non speculative business income or loss. As this is not considered as a special income it will not be taxed at special rates. 

Hence, Income from F&O will be calculated as normal business and profession income. Traders/Investors can get the deduction of expenses from the Income generated through F&O trades.

Since, it is taxable under the head Business and Profession one needs to file ITR form-3 file filing the ITR. Turnover calculation of F&O business is calculated by taking the absolute number of profit or loss.

Example: A has a loss of Rs.15000 in one trade and profit of Rs.25000 in another trade. Then turnover of A for the income tax purpose will be Rs. 40000/- (15000+25000).


Types of F&O Market

F&O or Future and Options market are of various types. F&O can be done in many different segments.

Stock F&O: Under this the underlying security is stock of the company and contract are entered into taking in account the price of the stock

Currency F&O:  Under this various currencies of different countries are the underlying asset. The future and options are entered into based on the currency of the country one selects.

Index F&O: Under this the underlying asset is the specific Index of the market. For example in the India stock market the Index F&O underlying assets will be Nifty 50 or Sensex.

Interest:  Under interest rate F&O , the underlying asset is the interest rate of the country. To protect the risk of a person from interest rate increase or decrease or to earn  an arbitrage gain Interest rate F&O can be entered into.

Expiry Date

Both the future and options contract need to be settled on or before the expiration date. The expiry date may vary depending on the contract terms. It may be a weekly expiry or monthly expiry. In India Nifty Index has a weekly expiry on every Thursday of the week, Bank NIfty has weekly expiry on every Wednesday of the week. The contract expires automatically if the position holder does not square off its position within the stipulated time.


We do not recommend to stop Investing in Derivative Markets. But before trading in to the derivatives market get the required knowledge, learning of the F&O segment. Avoid wasting your hard earned money in unwanted trades. Learn the process and start earning. F&O trading though gives you a huge earning potential as the broker platforms also offer margin facilities to allow the users to trade with more than the investment capital they have. It gives them more opportunities to trade in the F&O market. 

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