What are the risks of trading Futures and Options (F&O)?
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What are the risks of trading Futures and Options (F&O)?

Futures and options (F&O) are complex and leveraged financial instruments that can lead to permanent loss of capital if traded without understanding the risks.

Common risks of F&O trading include:

  • F&O orders can be executed partially or with significant price differences due to liquidity and market volatility.
  • Due to a large difference in the buying and the selling price, orders can be executed at prices far from the Last Traded Price (LTP), increasing impact costs. Here’s an example:

    The contract above is illiquid. Placing a market buy order for 100 shares based on the LTP will result in the order being executed at the price of ₹19.85. In this case, the difference of ₹10.8 is the impact cost. Impact costs can be reduced using Iceberg orders. To learn about more impact costs and Iceberg orders, see What are Iceberg orders, and how to use them?

To learn more about F&O trading and its risks, visit zerodha.com/varsity. To view the video version of Varsity, visit youtube.com/@varsitybyzerodha/featured.

When an account is opened, a copy of the RDD is sent to the registered email address. The Risk Disclosure Document (RDD) contains important information concerning risks that all investors, whether individual, non-individual, retail or institutional, take while trading or investing in any capital market instrument in all situations. To learn more, see What is Risk Disclosure Document (RDD) & Equity & Commodity Annexure Documents?