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.
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.
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.
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
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:
Read more: Applicability of Securities Transaction Tax
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.
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:
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.
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.
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.
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.
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.
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