f&o trading: Learn with ETMarkets: Beginners guide to F&O trading – Blue Barrows

The mystery surrounding F&O entices traders in pursuit of that ‘one’ trade of extravagant returns and feeling of having ‘arrived.’

Now, to ‘arrive’ shouldn’t they ‘begin’ their journey somewhere, ideally, armed with facts, tact, and following rules? No matter how many years you spend in trading equity, you must begin F&O trading with a professional mindset – with a focus on minimising risks and optimising rewards, gaining requisite knowledge and developing skills with a lot of self-discipline, patience and belief.

It is a serious profession and must be done seriously.

How much capital to start with is always a question in a beginner’s mind.

Initially, earmark only 10% of your investible capital to begin trading in F&O. Why? Because F&O is a leveraging game. You may end up with the temptation of higher returns and taking higher exposure which may not suit your risk appetite.

Understand the margin requirements for different derivatives instruments viz. currency, commodities, equity derivatives and so on. Sources of margin are cash deposited in the margin account pledged stocks or a debt fund.

Do not ignore the transaction charges such as taxes and brokerage, they do eat into your profits especially if you get into the habit of overtrading. Professionals study more and trade less.

Enthusiastic first-timers in F&O might fall for higher leverage due to unreasonable expectations or satisfying their greed.

In a scenario like on the Capital of 1L, in commodity derivatives you decide to leverage higher say till 10L. It’s a double-edged sword. A 10% move in your desired direction may earn you 1L i.e. 100% returns on your capital; however, an opposite move of 10% may result in a loss of 1L and wiping out the whole capital.

F&O is like fire, potent for cooking on a slow flame building wealth for you or burning the house down if risk management is thrown out of the door.

Leveraging is good but provided it is backed by a proper study, risk management rules and discipline of following stop losses.

Pro-tip reminder: Define the absolute percentage of capital you could afford to lose in a single trade and stick to it.

If you are a beginner, start with low-beta instruments such as USD-INR. And if you have limited capital, you may even venture into a trading instrument such as Silvermicro.

These instruments will help you understand the game of derivatives with lower risks. You must explore your style and trading psychology before venturing into highly volatile instruments such as Cryptocurrency or Bank Nifty.

In F&O trading profit or loss is settled every day (Mark-To-Market or MTM). Daily fluctuations of loss and profit reflected in your trading account might turn your excitement into anxiety, fear or panic at times.

Here mind management becomes imperative. In fact, F&O trading helps you discover your traits as to how you perceive and respond to unpredicted situations.

Often people fall into the vicious circle of recovery mode and dig their own graves. You must understand that loss is part and parcel of this profession.

So, accept every outcome with a smile like a pro and move on to the next opportunity with focus, discipline and patience.


Attracted to ‘easy-to-use’ trading apps? Falling for tips to make quick bucks? Bouts of an impulse to quit a job and follow F&O full time? If you ever contemplated any of these – stop right there! Remember – if you can’t be successful while doing your job, you will not be able to succeed even after leaving the job.

F&O trading is not a full-time activity nor is gambling. However, traders do behave like gamblers, rather than professionals. So, be high on the process and continuously improve your wisdom-based skill to attain professionalism.

Beware of the fact that 90% of beginners lose 90% of their capital in less than 90 days! Novices often mistake desperation for passion.

But passion or desperation, without ability, is a sure way to failure. In the F&O market money flows from losers’ pockets to winners’ pockets, undisciplined to disciplined, 95% rookies to 5% professionals! Strive to belong to that 5% pros to win 95% money.

Also, remember this is an option seller’s game that takes advantage of the time decay till expiry. Having the ability to analyse options data is paramount for success.

Beginners often indulge in buying options however they must realise that most options expire worthless by the time of expiry.

Hence, you must develop the skill to identify market trends and only then venture into buying options which is quite a lucrative proposition.

Identifying market trends as strong bullish, strong bearish, mild bullish, mild bearish, or neutral will help you position yourself to deploy relevant F&O strategy.

Even if you did get that ‘one fantastic’ trade, without proper training and practice, it could be called a bad gain or a ‘fluke’. And flukes don’t last long.

Anything successful first begins with a good plan. In F&O and in life, failing to plan is planning to fail.

Why be happy being a ‘one trade wonder’? Why not a professional who knows his chops well? After all, you didn’t come this far, only to come this far!

(The author is Financial Trader, Founder, Avadhut Sathe Trading Academy. Recommendations, suggestions, views and opinions are his own. These do not represent the views of Economic Times)