Learn with ETMarkets: Beginners Guide to F&O Trading – The Economic Times | Jewelry Dukan

The mystery surrounding F&O entices traders to chase that “one” trade for extravagant returns and a sense of “arrival.”

Well, in order to “arrive”, shouldn’t they start their journey somewhere, ideally armed with facts, tact and following rules? No matter how many years you spend in stock trading, you must start F&O trading with a professional mindset – with a focus on minimizing risk and optimizing rewards, acquiring necessary knowledge and developing skills with plenty of self-discipline, patience and conviction.

It is a serious profession and must be practiced seriously.

How much capital to start with is always a question on the mind of a beginner.

Initially, allocate only 10% of your investable capital to trading F&O. Why? Because F&O is a leverage game. You may end up succumbing to the temptation to seek higher returns and higher exposure, which may not match your risk appetite.

Understand the margin requirements for various derivative instruments i.e. currency, commodities, equity derivatives and so on. Margin sources are cash deposited in the margin account, pledged stock, or a debt fund.

Don’t ignore transaction fees such as taxes and brokerage fees, they eat away at your profits, especially if you get into the habit of trading too much. Professionals study more and act less.

Enthusiastic newcomers to F&O might fall for higher leverage due to unreasonable expectations or to satisfy their greed.

In a scenario like L1 equity, you decide to leverage more leverage in commodity derivatives, say up to L10. It’s a double-edged sword. A 10% move in your desired direction can earn you 1L, ie 100% return on your capital; However, a reverse movement of 10% can result in a loss of 1L and the destruction of all capital.

F&O is like fire cooking on a slow flame creating wealth for you or burning down the house when risk management is thrown out the door.

Leverage is good provided it is backed by proper study, risk management rules and discipline in adhering to 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 like USD-INR. And if you have limited capital, you can even venture into a trading tool like Silvermicro.

These tools will help you understand the game of lower risk derivatives. You need to research your style and trading psychology before venturing into highly volatile instruments like Cryptocurrency or Bank Nifty.

In F&O trading, profits or losses are settled daily (Mark-To-Market or MTM). Daily fluctuations in loss and profit reflected in your trading account can sometimes turn your excitement into fear, anxiety or panic.

This is where mind management becomes mandatory. In fact, F&O trading helps you discover your characteristics, how you perceive and react to unforeseen situations.

People often fall into the vicious cycle of recovery mode and dig their own grave. You must understand that loss is an integral part 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 by “ease of use” trading apps? Do you fall for tips to make money fast? Impulses to quit a job and follow F&O full-time? If you’ve ever thought of any of these – stop right there! Remember – if you can’t be successful at your job, you won’t be successful after the job is over.

F&O trading is not a full-time job, nor is it a game of chance. However, traders behave more like gamblers than professionals. So be high in the process and continually improve your wisdom-based skills to achieve professionalism.

Note that 90% of beginners lose 90% of their capital in less than 90 days! Novices often confuse desperation with passion.

But passion or despair without ability is a sure path to failure. In the F&O market, money flows from the pockets of the losers into the pockets of the winners, from undisciplined to disciplined, 95% beginners to 5% pros! Strive to be one of those 5% professionals to win 95% money.

Also, keep in mind that this is an option seller’s game that takes advantage of time lapse until expiry. The ability to analyze option data is paramount to success.

Beginners often indulge in buying options, but must be aware that most options expire worthless by the time they expire.

Therefore, you need to develop the ability to spot market trends and only then buy options, which is quite a lucrative endeavor.

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

Even if you got that “one awesome” trade without proper training and practice, it could be called a bad win or “accident”. And leeches don’t last long.

Everything successful starts with a good plan. In F&O and in life, failure to plan means failure.

Why Be Happy To Be A One Trade Wonder? Why not a professional who knows his stuff well? After all, you didn’t come this far just to get this far!

(The author is Founder, Avadhut Sathe Trading Academy)

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