Introduction To F&O Trade

If you are interested in the F&O segment and its potential for high returns but feel unsure of how to navigate this fast-paced segment, this guide is for you. We will provide you with the knowledge to choose top F&O stocks with confidence and take your trading journey to the next level.

We will cover all the key factors to consider, from analysing company fundamentals to identifying stocks with the right mix of liquidity and volatility. By the end of this guide, you will have the selection criteria you need to make informed F&O choices and maximise your options trading success. So, let’s get started and become an F&O expert!

There are numerous advantages to investing in F&O (Futures and Options) equities. However, Futures and Options derivatives are not accessible for all shares. This is when a thoroughly researched F&O stock list comes into play. 

It should be noted that the F&O stock list, as recommended by SEBI (Securities and Exchange Board of India), has approximately 175 equities.

In addition, SEBI specifies the eligibility conditions for inclusion on this list. In this post, we will discuss all you need to know about F&O stocks on NSE and provide an in-depth list of F&O stocks.

F&O stocks list

The F&O stock list is a collection of stocks ideal for trading in the Futures and Options (F&O) derivative sector. The F&O stock list is sustained by stock exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.

These exchanges have specific criteria for listing equities in the F&O category, including factors such as liquidity, market capitalisation, and trading volume, which are crucial for traders to consider. 

The F&O stock list often includes equities from various industries, including banking, IT, pharmaceuticals, and energy.

Here are the abilities you need to acquire to be profitable in futures and options trading.

Technical analysis:

Involves predicting price changes in financial markets using previous price charts and market indicators.

Open Interest Analysis:

Assists a trader in understanding the market environment by simply displaying the number of futures contracts that have changed hands during trading hours. It is mostly utilised by futures and options contract traders.

F&O terminologies: 

As a newbie, you should be familiar with a variety of F&O terminologies in order to better grasp how to trade F&O profitably.

Trading Strategies: 

Unlike equities trading, F&O trading entails strategy preparation, which includes specifying contract combinations.

Things to consider before your first F&O trade

• Futures offer leverage, allowing for the potential multiplication of profits and losses. The margin requirement for futures is typically around 20%.
• By paying a margin of Rs 20,000, one can acquire equities worth Rs 100,000 in the future.
• If the futures price rises by 10%, the profit on the margin is 50% due to leverage. It is important to understand that leverage works both ways, amplifying profits and losses.
• Buying options may seem low-risk, but more than 97% of them expire worthless. Option sellers take on more risk but have the potential to make more money than option buyers.
• Your chances of profiting when buying options are limited despite the perceived low risk. Depending on their trading style and risk tolerance, futures may be a better option for some traders.
• The asymmetry of options means that the buyer’s loss is limited to the premium, while the seller’s loss can be potentially endless. Futures margins can significantly increase during volatile times, posing a risk to traders who leverage their positions. 
• It is important to be aware of this potential increase and prepared to add new margins or close positions to avoid being forced to close by brokers.
• When trading Futures and Options (F&O), it is crucial to prioritise capital protection by using stop loss and profit targets. 
• Regardless of personal opinions on a stock, strict adherence to these trade-offs ensures disciplined trading and safeguards against potential losses.
• Traders should be mindful of the costs associated with F&O trading. While brokerage and charges may appear lower in percentage than equity, the higher churn rate in F&O can lead to significant cumulative expenditures. 
• To justify the efforts involved in F&O trading, it is recommended that a profit-to-transaction-cost ratio of at least 3:1 be maintained. F&O’s non-directional approach allows traders to trade options even when uncertain about the market’s direction.
• By utilising options and futures, traders can participate in markets without a clear bias, taking advantage of the flexibility offered by F&O instruments.

Conclusion

Options can be used to profit in both volatile and underperforming markets. These options elements are more important to you than utilising options to trade equities. Leverage is commonly used in futures and options trading. Although you may be tempted to make a lot of money by trading F&O, you should be aware of the risks.

So be hungry, not greedy. Learn the fundamentals & tricks of technical trading as well & then you can start trading.

If you are looking to trade in F&O Stocks but don’t want to spend too much time doing research, check out Unicorn Signals, The Super App for Indian Stock Market.

Explore the Unicorn Signals App, and you will come across Stock Futures Intraday Signals and Live Options Signals, where you can find the right stocks and signals to trade effectively in the F&O segment.

Disclaimer: Trading in the F&O segment in India is subject to risks. This article is purely for educational purpose. The views expressed and data provided here are by Equitypandit’s team. Kindly do not completely depend on the information provided as the risk appetite differs from individual to individual and there are various other factors in the market to determine the factors to invest in the market.