Plainly put, futures and options trading is not investing in the true sense of the term, but merely punting. Retail traders and investors hardly have the acumen that this kind of trading entails. Of course, investors may be savvy at conventional trading of equity, and even be proficient day traders. However, F&O trading is relatively new to the trading arena for investors and requires a great deal of quick thinking and strength enough to take advantage of opportunities that flash for a minute timespan on trading charts. The nimbleness that is required for F&O trading takes experience and skill to perfect.
About F&O Trading and Traders and Investors
In spite of all the unfortunate fallouts that have been the result of the health crisis of the recent past, retail investors and traders have had great days in the capital markets, both globally and in India. In India, the last few years have seen a rise in retail investing in terms of equity, amounting to some 45% of the total share of the market. This is in the segment of cash. More intriguingly, F&O trading has experienced an unprecedented turnover of 30%. This is regarding index futures and also in options.
Brokers have always prompted individuals to open a demat accountand start investing in the stock market to earn good gains. However, now brokers are also keenly offering investors and traders appealing margin trading choices with complex strategies to gain returns. Nonetheless, does this mean that ordinary investors should jump on the bandwagon and try F&O trading?
Why F&O Trading May Not Be a Good Idea for Ordinary Investors
Ordinary investors are those who invest in direct equity, or perhaps be interested in the subscription to any prospective upcoming IPO. These are conventional investors who may have traditional ways of investing, such as a simple “buy and hold” plan to invest in a long-term blue chip stock.
F&O trading comes under the umbrella of derivatives investment, and the increasing participation of retail investors in this segment is worrying regulatory bodies lately. Trading in the derivatives market is riskier than stock investing, and traders who are unsophisticated in the ways and methods of futures and options trading may lose out considerably. Furthermore, this makes the general outlook of the markets more speculative than required.
Taking a Shot at F&O
In spite of everything that experts may advise against for retail investors to have a go at reading the futures and options stock list, ordinary investors may still be prepared to take on the challenge of F&O trading. Here are some things to pay heed to (and some of the reasons why ordinary investors may not be suited to F&O investment):
- Trading in derivatives is primarily for investors who have expertise in this trading method.
- F&O traders typically have large cushions of capital to fall back on.
- F&O trading is getting more and more technology-oriented and this may not be within the abilities of ordinary investors to get a hang of.
- It is suggested that ordinary investors should stick to investing of a goal-based nature.
- Ordinary investors should consider that F&O trading takes a lot of time and effort, skill, and a particular temperament.
Think Before You Invest
You can easily open a Demat account and start F&O trading or any other type of investment in the markets, but you should do so initially with small amounts. Investing for the long term may not prove to be as exciting as F&O trading, but it is a durable and safe option for ordinary investors. Any upcoming IPO to invest in may also tend to be a good investment avenue.