The Ultimate Guide for Derivatives: Futures and Options Trading
Introduction In derivatives trading, stock price changes are profit-making opportunities for the investors without them ever physically owning the stocks. It is a market that provides itself to risk management or making quick bucks. As of March 2025, the National Stock Exchange (NSE) contains 217 stocks in the Futures and Options (F&O) list. This proliferation manifests the growing importance of derivatives in the Indian market. Understanding futures and options is the key for traders and investors to survive in this highly competitive environment. The market activities are heavily regulated by SEBI, which promotes fair trading and transparency. Understanding Derivatives: An Introduction What Are Derivatives? Derivatives are financial contracts whose value varies with the price of some other asset, such as stocks. They are used either to protect investments or to make profits by betting on price moves. The principal types are futures, options, and swaps. These help traders to avoid risks or speculate on price changes without taking ownership of the actual asset. The Role of SEBI in Derivatives Trading SEBI, the Securities and Exchange Board of India, is the regulator for all derivatives trades. It formulates rules and regulations to keep the market safe and transparent. SEBI, in 2025, gave new directions for making the market more stable and less subject to manipulation while also protecting investors. These included tightening margin and trading limits. Benefits of Trading Futures and Options Futures and options offer many advantages to investors. They protect against losses(i.e., hedging). Speculators use futures and options to increase profits from small initial investments. Other derivatives help the discovery of fair stock prices and add transparency to the market. Exploring Different Types of Futures Contracts In the Indian financial markets, futures contracts are available across multiple asset classes — stocks, indices, commodities, and currencies. Understanding each type is crucial for traders and investors looking to diversify their strategies. Stock Futures Standardized: a contract between the two persons in which they determine the specific quantity of the stock to buy or sell at the predetermined future date for a particular price. At present, March 2025, 217 of the stocks in the Indian stock market are recognized for trading in F&O in NSE. This is further classified into different sectors, for example, banking, IT, automobiles, pharmaceutical sectors, etc. Example Companies Available for Stock Futures Trading: Company Name NSE Symbol Sector Reliance Industries Limited RELIANCE Energy/Conglomerate Infosys Limited INFY Information Technology HDFC Bank Limited HDFCBANK Banking Tata Consultancy Services TCS Information Technology ICICI Bank Limited ICICIBANK Banking Bharti Airtel Limited BHARTIARTL Telecom Larsen & Toubro Limited LT Engineering & Construction Bajaj Finance Limited BAJFINANCE NBFC (Financial Services) Key Features: Lot Size: Like all stock futures, all stocks have a defined lot size. For example, Reliance has 250 in the lot size where 250 shares constitute one lot. Margin Requirement: The trader must pay the initial margin amount which is generally 20-25% of the entire value of contract in trade. Settlement: Cash-settled on expiry of contract, which means no delivery of shares. 📌Stock Futures serves the purpose of Hedging towards individual stock positions or leveraged exposure into stock movement. 2. Index Futures Contracts based on an index rather than individual stocks are called index futures. These contracts provide wider market exposure with highly liquidity. Popular Index Futures on NSE: Index Name Description NIFTY 50 India’s flagship index comprising 50 major companies across sectors. BANKNIFTY Covers 12 of the most liquid and large-cap banking stocks. FINNIFTY Represents the diversified financial services sector (banks, NBFCs, insurance). MIDCPNIFTY Focuses on mid-cap companies. Popular Index Futures on BSE: Index Future Description S&P BSE SENSEX Futures Futures contract based on BSE’s 30 largest and most traded stocks. S&P BSE BANKEX Futures Futures contract tracking major banking sector companies on BSE. S&P BSE SENSEX 50 Futures Futures based on the top 50 companies listed on the BSE exchange. S&P BSE Bharat 22 Index Futures Futures based on a diversified basket of 22 Public Sector Enterprises (PSEs). S&P BSE 100 Futures Futures tracking the top 100 listed companies for broader market exposure. Key Features: Diversification: One index future represents a portfolio of stocks. Low Volatility: Compared to single stocks. Cash Settlement: No delivery of stocks at expiry — cash-settled based on index closing value. 📌 Index Futures work best for traders having a view on the general market or sector movement rather than on particular companies. 3. Commodity Futures Commodity Futures allow trading in essential goods like metals, energy products, and agricultural produce. In India, commodity futures are primarily traded on the Multi Commodity Exchange (MCX). Major Commodity Futures: Commodity Description GOLD A traditional safe-haven asset, ideal during economic uncertainty. SILVER Industrial and investment demand makes silver highly volatile. ZINC Widely used for galvanizing steel to prevent corrosion. COPPER Essential for construction, electronics, and manufacturing industries. CRUDE OIL Vital for the global economy; sensitive to geopolitical events. Key Features: 📌 Commodity Futures are useful for both hedging and speculation based on global supply-demand dynamics. 4. Currency Futures Currency Futures help traders hedge against currency risk or speculate on forex movements. These are traded on platforms like the NSE and BSE in India. Popular Currency Futures Pairs: Currency Pair Description USDINR U.S. Dollar against Indian Rupee. EURINR Euro against Indian Rupee. JPYINR Japanese Yen against Indian Rupee. GBPINR British Pound against Indian Rupee. Key Features: 📌 Currency Futures are essential for exporters, importers, and global investors managing foreign exchange risks. Options Trading: Deep Dive What Are Options and Types of Them Options give traders the right but not the obligation to buy or sell an underlying stock at a specific price before expiration. Options can either be exercised before expiry for example, American options, or at expiry only for example, European options. How Options Trading Operates Options can either be in-the-money (making money), at-the-money, or out-of-the-money. Pros and Cons of Options Trading They can be used to hedge or speculate. The losses will never exceed the premium paid. However, there is a risk of losing the premium if the
Why 93% of Retail Traders Lose Money in Options Trading? – And How You Can Avoid It
There was a shocking report from SEBI (Securities and Exchange Board of India) stating that 93% of retail traders in the F&O (Futures & Options) segment are incurring losses. These are not just figures but instead depict the actual happenings behind those green screenshots and success stories flooding your feed. Adding to that, more telling statistics at the state-level were revealed. The top states with maximum trading losses are: These are not backward states. They are the home of several of India’s tech hubs and business centers, and some of the highest per capita income groups reside here. So how come even these educated and financially literate populations have not been able to make it in the stock market? The Illusion of Success in Trading Let’s be honest. Social media has made trading look like a “laptop lifestyle.” Quick profits. Fancy setups. Flashy cars. But behind that illusion is a reality full of anxiety, losses, and debt. The truth is, trading is simple—but not easy. According to Mallinath Mulage, Founder & CEO of The Safe Trader Academy, the problem lies not in the stock market itself but in the mindset, approach, and education level of traders. Below is a deeper dive into his 20 critical observations—real reasons why traders are consistently losing money. 1. Traders don’t spend enough time to learn A lot of people go for options trading after getting a glimpse of the venture from some YouTube videos or a webinar. But options trading is not something that can be learned over the weekend. It is a combination of market knowledge, technical analysis, psychology, and strategy-making. Would you ever want to board a plane having learnt just a couple of Instagram Reels about flying? 2. Traders want to make quick money People are drawn to options on account of the potential for high returns. Yet high returns imply high risk. The urge to double money in one trading day leads traders to ignore the basic rules of trading and indulge in impulsive trades. Fast money mindset = fast losses. 3. Traders are greedy Traders restricting their positions, yet hoping for more profits, almost always are losers as positions reverse and turn against them. Many traders don’t book profits; instead, they double the stake, hoping for recovery on a trade that has already gone against them. Greed allows you to stay in the market longer than you ever should. 4. Emotional Fear, greed, hope, and regret are the four demons of trading. Every time emotions step into the decision-making process, discipline is thrown out of the window. Most retail traders fail to have a plan; they merely react to every single candle on the chart. Emotion + money = disaster. 5. Not gaining required skills Successful trading is about multi-skilled learning: reading charts, understanding market sentiment, knowledge of risk management, and so on. Skipping these steps is like going to war without the weapons. “Skill pays the bills.” 6. Not maintaining stoploss Stop loss is your safety net: not placing it or moving it, hoping that the trade will “come back,” is perhaps the fastest way to blow your account. A stop loss is not an option; it is a matter of survival. 7. Naked options buying Most new traders just buy calls or puts without bothering about volatility (VIX) or time decay (theta) or direction. Buying options with not a care about strategy is akin to gambling at whatever roulette does. Trades with low probabilities generate high stress. 8.Wrong entry and wrong exit It is common to enter too late or exit too early or late. Without clear rules about when to enter and when to exit, you will be gambling. It is not timing that is everything; it is the only thing. 9. Don’t want to learn from the mistakes Too many traders make the same mistakes over and over again: leverage too much, hold onto a losing trade, hold on for news… Past trades are never reviewed, so nothing changes. Insanity is repeating the same thing over and over and expecting different results. 10. Overtrading Too many trades within a day cloud a trader’s judgment and drain him emotionally. Some traders refuse to stop even while on a losing streak; they instead continue trading to “recover.” Overtrading=death by a thousand cuts. 11. Depends on tips People blindly follow Telegram/WhatsApp tips without understanding the rationale behind it. Even if a tip works once in a blue moon, a false tip would wipe out weeks of profit. If tips worked, then everyone would be a billionaire. 12. Social media influencer Instagram reels and YouTube videos flash across the screen with huge profits but hardly show losses. It does not represent what trading truly is, thereby setting up unrealistic expectations. Social media shows highlights, but never the actual game. 13. No Trading Journal Not maintaining one means you don’t know what works for you and what doesn’t. A trading journal inculcates self-awareness and hones your edge. What gets measured gets improved. 14. No Mentor or Trade Buddy Without someone to guide you, it’s likely you will take much longer to learn or, worse, pick up a few bad habits. A mentor will help you avoid rookie mistakes and hold you accountable. All pros were once beginners, and so should you. 15. No Back testing You need to test your strategy on historical data before going live. If you don’t know how your set-up is performing over maybe 100 plus trades, you are literally trading in the dark. Never risk real money on untried strategies. 16. Not able to find the right institute to learn offline There’s every online video and free content and then there is the structured in-depth offline education hard to find. They even lack hands-on guidance. Learning is as personalized as it comes. 17. Taking risk beyond the risk appetite Big bets might hit big on a single trade jackpot; however, jackpots are often lost in each losing trade. Be in it for life, not