Futures and Option (F&O) contract in Trading

Feb. 17, 2023

Recently, the Securities and Exchange Board of India (SEBI) has asked local hedge funds to declare their futures and option (F&O) trades and the underlying stocks on which such equity derivative positions were built.

About Futures and Option (F&O) contract:

Futures Contract: It is an agreement between buyer and seller to buy or sell an asset at a certain time in the future at a certain price.
The buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.
Underlying assets include physical commodities and financial instruments (stocks, currencies and bonds etc.)
They are subjected to high risk and can reap unlimited profit or loss.
Option Contract: An option is a contract that gives an investor the right but not the obligation to buy or sell a commodity at a specified price at a specified future date.
They carry limited risk and can reap either unlimited profit or loss.
Advance is paid in the form of premiums in option contracts.