Published 20 July 2026 · By the PCJ Desk · about 7 min read · General educational information, not investment advice.
Futures and options (F&O) are derivatives — contracts whose value comes from an underlying asset like a stock or index. They let you take a view with leverage or hedge an existing position, but that leverage makes them high-risk. This guide covers the essentials before you consider trading them.
What is a futures contract?
A future is an agreement to buy or sell a fixed quantity of an underlying at a set price on a future expiry date. You post a margin rather than the full value, so profits and losses are amplified. Index and stock futures are settled in cash or squared off before expiry.
What is an option? Calls vs puts
An option gives the buyer the right, not the obligation, to buy (a call) or sell (a put) the underlying at a set strike price before expiry, for a premium. A call buyer profits if the price rises above the strike (plus premium); a put buyer profits if it falls below. Option buyers risk only the premium paid; option sellers collect premium but take on much larger, potentially unlimited risk.
Lot size, margin and leverage
F&O trades in fixed lots set by the exchange. Futures and short options require margin; leverage means a small move in the underlying causes a large percentage move in your position — which is exactly why beginners lose money quickly when they over-size.
Hedging vs speculation
Derivatives can hedge — e.g. buying a put to protect a stock holding — or speculate on direction. Hedging reduces risk; speculation with leverage increases it. SEBI studies have shown a large majority of individual F&O traders make net losses, so approach speculation with caution and a plan.
Risk management essentials
Trade small, define your maximum loss before entering, avoid selling naked options without understanding the risk, and never use money you cannot afford to lose. Learn the Greeks and payoffs first — our Options and Futures academy modules and the option strategy tools can help.
Frequently asked questions
Are options safer than futures?
Buying options caps your loss at the premium; selling options can involve very large losses. Futures losses can exceed your margin. All are high-risk.
How much capital do I need for F&O?
Enough to cover exchange margins per lot plus a buffer; start small while you learn.
Can I trade F&O as a beginner?
You can, but educate yourself first and size positions tiny; most beginners are better off mastering equity and mutual funds before derivatives.
Where PCJ fits. PCJ Holdings is a SEBI-registered stock broker and NSDL depository participant, headquartered in New Delhi and serving investors across Delhi NCR since 2006 — with a dedicated relationship manager, one account across equity, F&O, commodity, currency, mutual funds, IPOs and wealth products, and transparent charges. Open an account or talk to an RM.