Open Futures & Options Trading Account
- F&O Trading
F&O Trading Account allows you to trade in futures and options (F&O) segments. F&O contracts are derivative instruments trading on the stock exchange. Assets can be securities, commodities, or currencies. Its value varies with the value of the underlying asset. The size of the contract or lot is decided.
Futures contract: This means you agree to buy or sell the underlying security on the 'future' date. If you buy the contract, you promise to pay the price at a specified time. If you sell it, you will have to transfer the buyer at a specified price in the future. Open futures trading account to start a trade.
Option Contract: It empowers the buyer to buy or sell the underlying asset at a predetermined price, within or at the end of a specified period. However, he is not obliged to do so. When the buyer exercises his right, the seller of an option is obliged to arrange it. open options trading account to start a trade.
Open An AccountHow to Open F&O Trading Account?
To start an F&O account, you must submit a 'client registration form' along with other mandatory SEBI documents. As you already know, SEBI is the regulator for the securities market in India. The documents include an account opening form and relevant Know Your Client (KYC) verification proof. Here is a list for reference to open F&O trading account with Aaditya Wealthon:
STEP - 1
First Document to open options trading account is the Account Opening Form.
STEP - 2
Identity proofs are as follows: PAN card/Voter's ID/Passport/Driving license/Aadhaar card.
STEP - 3
You can provide any of the following address proof documents: Telephone bill/Electricity bill/Bank statement/Ration card/ Passport/Voter's ID/Registered lease or sale agreement/Driving license.
STEP - 4
Financial proof: In addition to a bank statement, you can provide any of the following documents: (Net worth certificate, Salary Slip, Demat account Holding statement, Copy of ITR Acknowledgement, Annual Accounts, Form 16 in case of salary income).
After the submission of the following documents, the verification process will be done through a phone call or an in-house visit. After verification, your f&o trading account is set up and you will receive your account details through mail or text on your registered email or mobile number.
Start with your research or take the expert advice
This is more important for the derivatives market. Derivative trading can be done only in available derivative contracts. In the NSE F&O segment, we have three contract months at a time that end in their respective expiry dates which are usually the last Thursday of the month. So traders need to exit before the expiry and it will auto settle on expiry day. So delivery requires a more accurate and time-bound view than buying shares.
Arrange for the expected margin amount
Derivative contracts are started only by paying small margins and traders need additional margins as per stock fluctuations. Also, remember that the margin amount varies as the price of the underlying stock increases or falls. So always keep extra money in your account.
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Benefits of F&O Trading
Hedging
It helps in protecting against the uncertainties of future prices.
Leverage
Since the margin requirement is very low, it allows high trade risk.
Potential Return
Despite market conditions, anyone can make money.
Longer position taking
It gives a time gain of up to 3 months at the rate of 1-3 days offered in other margin products.
Common Terms in the F&O Market
Shorts and Longs Position
Future or option buying in terms of F&O markets, with the expectation that asset value will increase, is called a long situation. As long as you square this situation by offsetting the trade, this position will remain as a long position.
Put Option in F&O
The Put option gives the buyer the right, but not an obligation, to sell the built-in instrument at the strike price or before the expiry date. A trader can buy a put option if there is a slowdown on a stock or index.
Call Option in F&O
The call option gives the buyer the right, but not an obligation, to buy the underlying instrument at the strike price or before the expiry date. A trader can buy a call option if a stock or index is bullish.
Intrinsic value in an Option
The internal value of an option is the difference between the actual price of the underlying security and the strike price of the option.
