What is the Full form of F&O in Share Market?

The F&O Full Form in Share Market is Futures and Options. Futures and Options (F&O) stand as a powerful segment within this realm, allowing investors to delve deeper into market movements and potentially magnify returns. This comprehensive guide explores the intricacies of F&O contracts, their functionalities, and the significance they hold in the share market ecosystem.

Demystifying Derivatives:

Understand derivatives before F&O. Financial derivatives are based on equities, commodities, currencies, or indices. Unlike stocks, derivatives are contracts to buy or sell an asset at a given price and date.

Options, futures

Buyers and sellers agree to trade a specified quantity of an underlying asset at a defined price on a future date in futures contracts. The price is predetermined upon contract signing, protecting both parties from asset price volatility.An options contract buyer has the right but not the obligation to buy or sell an underlying asset at a strike price by expiry. Options provide purchasers greater flexibility than futures. They may buy or sell at the strike price if their market prediction coincides or let the contract expire worthless if not.

Share Market F&O Importance

Futures contracts affect spot market prices and aid price discovery by giving ongoing product price quotes. Options let investors hedge cash market holdings. Purchase put options to decrease losses if the asset’s price drops.

F&O Trading Details:

If the market goes wrong, leveraged futures trading amplifies losses. Investors may face financial pressure to fulfill margin calls to maintain their ownership. Options lose value near expiry. Even if the asset’s price rises as projected, time decay might greatly limit the profit.

Differences between Futures and Options:

Both the Futures and the Options trading are different with respect to the obligations that they impose on the individuals. Futures act as a liability to the investors, demanding them to follow a contract by a pre-determined date. A futures contract enables the buying and selling of the underlying security at a predetermined date and price. Options contract offers the buyer a choice to do the same if he profits from the trade.

Who should invest in FO?

Futures and Options trading are viable investment opportunities for hedgers who want to reduce investment volatility with respect to price changes. Speculators predict the price movement in the market and gain from Futures and Options trading. FO trading is promising for arbitrageurs as well, who wish to profit from the price differences in the market, secondary to imperfections in the market.