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What is the F&O in the Indian share market?

Hi Traders,

Equity trading is buying and selling of a company’s stock through either BSE or NSE.

F&O are nothing but Futures and Options. These markets are called Hedging markets. Hedging is a method to ensure your investments in equity/cash markets do not suffer losses and make it the least. It is like an Insurance to cover risks. It is a risk reduction or elimination strategy.

For Example,

I have a stone which cost me 100 bucks.

. . .

You paid me 100 and now, you own that stone. That’s equity (delivery/intra day)

Why we made the transaction?

You think the price will spike and I think the price will plunge.

. . .

Again, you came and we agreed to transact the stone for 90 but in future after 3 months. That’s F for future.

Why I agreed to sell it for 90?

Many reasons like I’m not getting any buyer and my instinct are saying that the stone will worth 80 after 3 months.

Why you agreed to buy it for 90?

Your instinct tells you, somebody will buy the stone for 100 after 3 months.

. . .

You hand over 10 bucks to me for not selling my stone to anybody for next 3 months and you have an option to either buy the stone for 100 but after 3 months or leave the deal.

10 bucks will be non refundable in either case.

Why you don’t buy it now?

Because you think, you can sell that stone for 120 after 3 months and – odd reasons – you don’t have money right now.

NOTE: Even if I got any other buyer paying me more than 110 (100 + 10), I don’t have right to sell it because you bought my rights for 10 bucks but only for 3 months.

Why did I agreed?

Because I think I can’t get more than 110 for my stone in coming 3 months.

. . .

Long story short.

When we make transactions in present, it’s equity trading.

When we agreed to make transactions in future, it’s futures or options trading.

. . .

Thanx for reading🙂

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Praveen Maxter

Praveen Maxter

An Intraday trader with 6 years of experience.

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