F&O stands for futures and options. They are called derivatives, because their value is derived from something else, like a share or an index such as the Nifty 50. You don't own a piece of a company when you trade them. You hold a contract.
Futures, in simple words
A futures contract is an agreement to buy or sell something at a fixed price on a future date. Futures trade in fixed lot sizes, and you only need to put down a part of the full value, called margin.
Options, in simple words
An option gives the buyer the right, but not the duty, to buy (a call option) or sell (a put option) at a fixed price before a set date. The buyer pays a price called the premium. Options lose value as the expiry date gets closer, and many expire worth nothing.
Leverage cuts both ways
Because you only put down a part of the value, a small move in the price can mean a big gain or a big loss compared with the money you put in. Example with made-up numbers: if a contract is worth ₹5,00,000 and you put down ₹1,00,000 as margin, a 2% fall in the contract's value (₹10,000) is a 10% loss on your money. A 10% fall would wipe out half of it.
What SEBI found
In September 2024, SEBI published a study of individual traders in equity F&O. It found that 93% of individual traders lost money between FY22 and FY24, and that their total losses over those three years were more than ₹1.8 lakh crore. You can read SEBI's press release (official website, opens in a new tab) yourself.
F&O is mainly used by professionals, for example to protect a portfolio against a fall (hedging). It is complex, and many of the costs (brokerage, taxes, exchange fees) add up quickly when people trade often.
Watch out for F&O tips
Posts that promise "daily ₹10,000 from options" or "sure-shot Bank Nifty calls" are common. No one can promise F&O profits. Paste such a post into our Tip Checker to see its warning signs, and read how stock-tip scams work.