Costs Involved in F&O Trading

Stock exchanges in India introduced derivatives trading such as futures and options in the year 2000. In the initial phases, F&O trading was only allowed with indices as the underlying asset. Later, F&O trading was introduced for individual stocks and many other types of underlying assets. In recent years, futures and options trading has gained a lot of popularity and accounts for the majority of trading on the stock exchanges.

Table of Contents hide

1 What are futures and options?

2 Cost of F&O trading

3 How to get F&O trading account?

4 Factors to note before trading in F&O

5 Conclusion

6 FAQs

While starting off with F&O trading, investors and traders often focus on the strategies and profit-making opportunities. However, it is equally important to look at the cost aspect of such trades.

For the benefit of new entrants in this space, here’s a look at the cost details of F&O trading. Let’s begin by understanding the concept of F&O trading.

What are futures and options?

Futures and options are derivatives contracts that derive their value from an underlying asset. There are many kinds of assets that can be traded through F&O contracts. Some of them include stocks, bonds, indices, commodities, metals, etc.

Futures and options contracts are mainly used for two purposes.

To hedge against price fluctuation risk.
To profit from price movements through speculation.

Every future and options contract has to have a counterparty. Thus, every buyer in such contracts will have a seller and vice versa.

Read more: Points to know before starting off F&O trading

Cost of F&O trading

The table below shows the charges applicable for F&O trading at Fisdom:

Category	Futures	Options
Brokerage	Rs. 20 per executed order or 0.05% (lower of the two)	Rs. 20 per executed order
STT	0.01% only on sell.	0.05% only on sell.
Transaction Charges	NSE:Exchange turnover charge: 0.0020%	NSE:Exchange turnover charge: 0.053%
Demat transaction charges	Nil	Nil
GST	18% (on brokerage + transaction charges)	18% (on brokerage + transaction charges)
SEBI Charges	₹10 / crore + GST	₹10 / crore + GST
Stamp duty charges	0.002% or ₹200 / crore on buy-side	0.003% or ₹300 / crore on buy-side

Apart from the above-mentioned, the following charges have to be borne by a trader/investor:

Account opening charges – Rs. 299 including tax
Interest charges for Margin Trade Funding – 2% per month
Call & trade support – Rs. 20 per executed order
RMS auto square-off Charges – Rs. 50 per order
Payment Gateway charges – Rs. 9 + GST per transaction

How to get F&O trading account?

To trade in futures and options, you must open a derivative account with a registered broker. An existing equity trading account can also be used as an F&O trading account by submitting additional documentation like the ‘Client Registration Form’ and certain SEBI-mandated KYC documents.

Here are the steps to be followed for opening a Demat account for F&O trading:

Step 1: Fill and submit Demat account opening form.

Step 2: Submit proof of address and ID proof

Step 3: Complete mobile verification

Step 4: Provide financial or income proof like a copy of bank statement or ITR acknowledgement or salary slip, etc.

Factors to note before trading in F&O

Opening a futures & options trading account with a broker is only the first step towards exploring this investment format. Futures and options trading can be complex as compared to regular equity investing and trading. Here are some points to bear in mind before entering F&O trades:

An investor/trader needs to understand certain nuances before entering into such trades.
There is no need for a Demat account to trade in futures and options since these are contracts rather than assets.
F&O trades can act as a good hedging mechanism if executed with a trading plan.
F&O trades require relatively low capital since only a fraction of the contract cost needs to be deposited as a margin.
This form of trading requires a good understanding of market technicalities along with an exit plan.
With options contracts, investors/traders can have the flexibility to exercise the contract.
Some of the underlying assets in F&O contracts may have lower liquidity levels.

Conclusion

Derivatives trading is ideal for those who have appropriate financial cushions to take any impact on the capital invested. Since F&O trading involves the usage of advanced technology, it also attracts more cost per transaction as compared to regular equity trades. Retail investors should carefully consider these costs before opting for F&O trades.

FAQs

What is STT?

STT or Securities Transaction Tax is a charge that investors/traders need to pay to the government. It is charged in the contract notes issued by brokers and is calculated as per the transaction value.

Do F&O trades require less capital than equity trades?

F&O trades may require less capital than equity trades since these contracts can be entered using margins. Margin is a percentage of the total contract value that an investor/trader pays at the time of entering the contract. However, since the quantity of underlying assets is generally large in such trades, larger capital is required at the time of contract expiry.

Are F&O trades suited for retail investors?

Retail investors may not find F&O trades as profitable as professional traders. This is because retail investors may have limited capital and knowledge about the F&O segment.

Are F&O trades risky?

F&O trades can be highly risky if not executed with caution and appropriate planning. It requires a good deal of knowledge about the markets, a thorough understanding of the trade technicalities and constant watch on the price movements.

Rudri Rawell