F&O trading rules will change from November 20, minimum amount will increase from Rs 5 lakh to Rs 15 lakh.

SEBI New Rule: SEBI has issued a circular for new rules related to Futures and Options (F&O), in which it has been told that these new rules will be effective from November 20. According to this circular, from February 1, option buyers will have to pay upfront premium and intra-day position limits will also be monitored. Additionally, SEBI has set the minimum value of index futures contracts for derivatives at Rs 15 lakh, whereas currently it ranges between Rs 5 lakh to Rs 10 lakh.

With the implementation of the new rules, there has been a major change in the contract size of futures and options trading, with the aim of better managing the risk of trading. According to SEBI, these changes will be implemented in several phases so that they can be implemented smoothly in the market and traders and investors get the necessary time. These rules are intended to promote transparency and security in the futures and options markets, as well as ensure high pricing for large contracts, thereby effectively managing risk and control of trading.

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Main reasons behind implementation of new rules

The main reason behind the implementation of the new rules is the extremely risky nature of the derivatives market. The current concern of SEBI is that the participation of retail investors in this market is increasing rapidly. SEBI believes that many investors are entering the derivatives market because they expect that they will get very high profits from here. However, most of these investors do not have proper knowledge or experience of the derivatives market, due to which they are unknowingly taking huge risks.

The derivatives market is highly volatile and complex, where the possibility of loss is high if you invest without complete information. SEBI aims to reduce such risks through these rules and ensure that only those investors enter this market who properly understand its functioning and risks.

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What is F&O?

F&O stands for “Futures and Options”. These are two major derivatives instruments in the financial market, which provide investors and traders with the right or obligation to buy or sell an asset at a certain price in the future. Let us understand both of these in detail.

1. Futures

Futures are a type of financial contract in which two parties agree to buy or sell an asset (such as a share, commodity, currency) at a certain price on a certain date.
main feature: This is a binding contract. This means that both parties have to honor their commitments on the contract’s expiration date, regardless of market prices.
Example: Suppose you are an investor and you think that the price of gold will increase. You enter into a futures contract to buy gold after 3 months at a price of Rs 50,000 per 10 grams today. If after 3 months the price of gold becomes Rs 52,000, you will make profit because you can buy it for Rs 50,000 as per the contract.

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Options

An option is a contract that gives the buyer the right to buy or sell an asset at a certain price by a certain date, but does not have the obligation to do so.
Type,

call option: This gives you the right to buy an asset at a fixed price in the future.
put option: This gives you the right to sell the asset at a fixed price in the future.
main feature: In this the buyer has to pay only a premium (an advance amount). If the market goes against their expectations, they only lose the amount of the premium, not the value of the entire contract.
Example: Suppose you have bought a call option on a stock with a strike price of Rs 100 per share, and have paid a premium of Rs 5 per share for it. If the stock price becomes Rs 110, you can make profit. But if it falls to Rs 95, you will not exercise the option and will incur a loss of only Rs 5.

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Advantages and Risks of F&O Trading

advantages

Risk Management (Hedging): Investors can use these instruments to protect their invested capital from possible losses.

leverage: Larger amounts can be invested with less capital, thereby increasing potential profits.

risk

higher risk: Since it is based on leverage, even small changes can turn into big profits or losses.

market uncertainty: If the direction of the market is opposite to your expectation, there may be loss.

Note: F&O trading requires experience and deep understanding. Therefore it should be done carefully and with an understanding of the risks.

Disclaimer: Prabhat Khabar does not advise anyone to invest in shares of any company. It is subject to market risks. Before investing, definitely take advice from a market expert.

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