Unlocking Futures & Options (F&O): A Guide to Opening Your Trading Account in India in 5 easy steps

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Futures and Options (F&O) trading popularity in India is increasing every passing day and it is used for hedging as well as speculation. For the enthusiastic traders who want to jump into F&O trading of the Indian Stock Market, the first necessary step to be taken is opening a trading account enabled with F&O trading. This blog will provide you a step-by-step process to help you in opening your F&O account and start your trading journey in India.

What are Futures & Options?

Basically, Futures & Options (F&O) are derivatives which derive their value from an underlying asset such as stocks, indices, currency, and commodities.

1. Futures : It is an contract agreement for buying and selling an asset at a predetermined pirce on a particular future date.
2. Options : It is also an contract agreement which gives its buyer the right and not obligation either to buy or sell an asset at a set price anytime before it crosses its expiry date.

Futures & Options (F&O) trading provides leverage and also allows traders to control large positions with a relatively small margin amount. Futures & Options (F&O) is considered a higher returns, higher risk segment.

Step by Step guide to Open Futures & Options Trading Account

1. Select an Established Broker 

Selecting an established broker is essential for a smooth trading experience. Consider following points while selecting an Established Broker :

1. Brokerage Charges : Compare brokerage charges across all brokers for F&O trading and also check transaction charges and margin fees.
2.  Trading Platforms : Look for Broker who provides user friendly trading platform and also offering latest technology and real time data.
3. Regulatory Compliance : Make sure the broker has all necessary registrations and approval from Securities and Exchange Board of India (SEBI).
4. Customer Support : Also confirm that broker has robust customer support available during market hours.

• Open Demat as well as Trading Account

For trading in Futures and Options (F&O) one need both a Demat account as well as trading account. Generally all brokers provide both the accounts.

Steps for Opening an Account :

1. Log into Broker’s website or visit to Broker’s Branch.
2. Fill the Account opening registration form .
3. Submit all necessary documents as mentioned in Account opening registration form. Generally documents required for Account opening is one’s copy of Pancard, Aadharcard, and Income Proof.
4. Complete your KYC (Know your customer) process.
5. Share your Bank Account’s  cancelled cheque copy for initiating transfer of Funds.

• Activation of Futures & Options (F&O) segment

Once your account is activated, one has to enable Futures & Options trading segment. Steps for activating Futures and Options (F&O) segment are as follows :

1. Submit additional income proof such as copy of latest ITR.
2. Latest half yearly Bank statement.
3. Copy of Salary Slip.

• Understanding Margins and Lot sizes

Futures and Options (F&O) trading requires margin which is usually a percentage of the total contract value. The margin differs according to the market volatility and as per the underlying Asset.

Also, the Futures & Options (F&O) are traded in specific lot sizes which is pre determined by the exchanges in India.

• Understanding the trading platform

Once your account is activated, get first hand idea of Broker’s trading platform. Check its features like Market watchlist, Option chain Analysis, various types of order types and charting tools for technical analysis.

Points to remember for successful Futures and Options (F&O) trading

1. Educate Yourself
   The most important aspect for successful Futures and Options (F&O) trading is acquiring proper knowledge in not only Derivatives Fundamentals but also Technical Analysis as well as Risk management strategies.
2. Importance of Starting Small
   One should initially focus on learning rather than looking for quick gains as well as big profits. Benefits of starting small is it reduces risk of loosing big money at the early stage of one’s career in Futures and Options (F&O) trading.
3. Importance of Stop Loss Orders
   The most important thing to learn about Futures and Options (F&O) learning is applying stop loss orders in your system which enables to exit in nominal loss if the trade goes against your position.
4. Keep a track on Market Trend
   One should keep a close watch on market trends, latest government policies, latest Economic News as well as corporate earnings report.
5. Avoid Overtrading
   Overtradingis very dangerous and can finish one’s capital in a matter of days if it is not handled properly. One should always have a trading plan before taking a trade and should always trade according to that trading plan.
   
   

Costs associated with trading in Futures and Options (F&O)

Trading in Futures and Options (F&O) comes with additional costs and charges which are namely :

1. Brokerage Charges: Brokerage charges are the fees charged by one’s broker for trading in futures and options (F&O).
2. Transaction Charges: These are the charges that are charged by the exchanges.
3. GST: GST is charged by the government on all the transactions one does in Futures and Options (F&O) Trading.
4. Securities Transaction Tax (STT): STT is also applicable to all the transactions one does in Futures and Options (F&O) trading.
5. Stamp Duty: Stamp duty charged is not the same everywhere, it differs from state to state.

Regulatory Framework in India

Futures & Options (F&O) trading in India is completely managed and controlled by the Securities and Exchange Board of India (SEBI). Notable regulations include:

1. Keeping track of the requirements of Margins for mitigating Risks.
2. Daily settlement of mark-to-market (MTM).
3. Limits in position for prevention of market manipulation.

Risks Involved in Futures & Options (F&O) trading:

Though Futures & Options Trading (F&O) has the potential for huge profits, it also has the same or even higher probability of risks due to the following factors:

1. Leverage Risk: The higher the leverage higher the losses.
2. Market Volatility: It is difficult to judge markets’ sudden and sharp movements thus resulting in losses.
3. Liquidity Risk: It is sometimes difficult to exit one’s position due to low liquidity.

Conclusion:

Though trading in Futures and Options (F&O) seems very lucrative, trading it without any knowledge or without any trading plan leads to huge losses.

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