Learn · 7 min read
Futures and Options Basics (2026): A Beginner's Guide to F&O in India
New to F&O? Learn what futures and options are, how lots, premiums, margin and expiry work, the real risks involved, and what to check before you place a trade.
What are derivatives?
Futures and options are derivatives. Their price is derived from something else, called the underlying. In India, popular underlyings include stock indices and individual large stocks.
You do not own the underlying shares when you trade F&O. You are trading a contract that rises or falls in value as the underlying moves.
How futures work
A futures contract is an agreement to buy or sell the underlying at a set price on a future date. You do not pay the full contract value upfront; instead you deposit margin with your broker.
Profits and losses are settled daily based on the closing price, a process called mark-to-market. If the price moves against you, you may need to add more money quickly to keep the position open.
How options work
An option gives the buyer the right, but not the obligation, to buy (a call) or sell (a put) the underlying at a set strike price before or on expiry. The buyer pays a price called the premium.
The option seller (or writer) receives the premium but takes on the obligation. Sellers must keep margin with the broker because their potential loss can be large.
- Call buyer: benefits if the price rises above the strike plus premium
- Put buyer: benefits if the price falls below the strike minus premium
- Option buyer's maximum loss: the premium paid
- Option seller's risk: can be much larger than the premium received
Put numbers on it: see what your trades cost at every broker. Try the compare-all brokerage calculator
Lots, expiry and margin
F&O contracts trade in fixed lot sizes set by the exchange, and these are revised from time to time. Always check the current lot size on the exchange website or your trading app before placing an order.
Every contract has an expiry date. On expiry, contracts are settled as per exchange rules, which may be cash settlement or physical delivery for stock derivatives. Not understanding settlement rules is a common and costly beginner mistake.
Pro tip: Use our margin and brokerage calculators to understand the capital and costs a trade needs before you place it.
The real risks
Leverage means small price moves create big swings in your account. Options also lose value as expiry approaches, so being right on direction but wrong on timing can still lose money.
SEBI has published studies showing that a large majority of individual traders in equity F&O made losses. Investments are subject to market risk, and F&O magnifies that risk. Only trade with money you can genuinely afford to lose.
Getting started responsibly
To trade F&O you need to activate the segment with your broker, usually by submitting income proof. Take this step only after you have learnt the basics.
- Learn how option pricing, time decay and volatility work
- Paper trade or use very small positions first
- Always use a stop-loss and size positions conservatively
- Track every trade, including all charges, in a journal
Frequently asked questions
Do I need income proof to trade F&O?
Yes, brokers generally ask for income or net worth proof before activating the derivatives segment.
Can I lose more than I invest in futures?
Yes. Because futures are leveraged and settled daily, losses can exceed the margin you initially deposited.
Is buying options safer than selling them?
Buying options caps your loss at the premium, but most bought options can expire worthless. Selling options can earn premium more often but carries much larger potential losses.
Where can I find the current lot size of a contract?
Check the exchange website or the contract details in your trading app. Lot sizes are revised periodically, so avoid relying on old figures.
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Educational content, not investment advice. Investments in securities markets are subject to market risks.