Online trading platforms in recent times have enabled beginners as well as seasoned investors to explore the rising financial instruments that were once limited only to experts and professionals. One such sophisticated financial instrument is futures and options. Trading in FnO is considered a powerful means to both hedge risks and generate profits. However, trading in futures and options can become really complicated and tricky compared to trading in the traditional share market. 

Let’s go through this beginner’s guide to thoroughly understand the basic ins and outs of F&O trading and the key pointers that you must remember before you get started. 

What Is FnO Trading?

To put it in simple terms, a futures contract can be understood as an agreement between two parties to sell or buy an asset, stock or commodity at a predecided price in the future. The date to buy or sell the specified asset is decided upon by the parties who are obligated to buy or sell the asset at the expiry, irrespective of any market fluctuations. 

An options contract, on the other hand, gives the buyer of the asset the right (not an obligation) to buy or sell the asset at a predetermined price before or on a specific date. There are usually two types of options: 

• Call Option: This gives the buyer the right to buy. 
• Put Option: This gives the buyer the right to sell. 

As mentioned before, since options are contracts that only give the buyer the right to buy or sell but do not tie him into an obligation, the buyer can easily choose not to exercise the said contract if the market is not in his favour. 

Some key terms that every beginner should be aware of before entering into F&O trading online are: 

• Strike Price: This is the fixed price at which the option holder can buy or sell the asset. 
• Premium: This is the cost of buying an option.
• Expiry: The last date until which the contract is valid.
• Margin: This is the initial deposit a buyer needs to enter a futures position.
• Lot Size: This is the fixed quantity of the asset in one contract.
• Settlement: This is the process of finalising profits and losses on expiry. 

How FnO Trading Works?

The process of f&o trading online is very seamless and easy, if you follow the steps mentioned below: 

• Open a trading and demat account from a registered broker that offers F&O trading services. 
• Transfer funds into your trading account to facilitate your first trade. 
• Perform thorough market research and decide which assets you would like to trade in. 
• Once decided, place an order for the same by entering the contract details, quantity and price. 
• Follow the market consistently to monitor movements in order to square off your position before expiry. 

Futures and options trading bring thrilling prospects in financial markets. With proper knowledge and a disciplined framework, FnO trading enables investors to hedge, speculate, and diversify. As a newcomer, your priority should be studying the fundamentals, practising via small trades or simulation, and getting progressively confident.