Trading in the Indian stock market has seen a massive transformation over the past decade, with Futures & Options (F&O) trading emerging as the most popular segment among active traders. While equity trading remains the foundation of investing, F&O has become the preferred choice for many due to its unique features, market structure, and potential for higher returns. However, this preference comes with significant risks, as recent data and regulatory changes highlight. This article will explain in simple terms why F&O trading is more preferred than equity trading in India, using the latest data and developments up to 2025.
What Are F&O and Equity Trading?
Equity Trading involves buying and selling shares of
companies listed on the stock exchange. When you buy a stock, you become a
part-owner of the company.
Futures & Options
(F&O) are derivative
contracts. They derive their value from underlying assets like stocks or
indices. In F&O trading, you do not own the actual shares but trade
contracts based on the future price movements of these assets.
- Futures:
Agreements to buy or sell an asset at a predetermined price on a specific
future date.
- Options:
Contracts that give the right, but not the obligation, to buy (call) or
sell (put) an asset at a set price before expiry.
The Rise of F&O Trading in India
F&O trading in India
has grown exponentially. According to the National Stock Exchange (NSE), the
average daily turnover in F&O has soared to around ₹50,000 crore in 2025,
up from ₹10,000 crore a decade ago. This surge reflects the increasing
participation of retail and institutional traders in the derivatives market.
Also read: VWAP Trading Strategy
Why Do Traders Prefer F&O Over Equity?
A. High Leverage: Control Big Trades With Less Money
- Leverage is
the biggest attraction in F&O trading. You can control a large
position by paying only a fraction of the total value as margin. 5Paisa
- For example, to buy ₹10 lakh worth of a stock in the
cash market, you need ₹10 lakh. In F&O, you may need only ₹1-2 lakh as
margin.
- This means potential for higher profits with less capital.
However, losses can also be magnified.
B. High Liquidity: Easy Entry and Exit
- F&O contracts, especially on popular indices like
Nifty and Bank Nifty, are highly liquid.
- High liquidity ensures that traders can quickly enter
or exit positions without significant price impact.
C. Opportunity to Profit in Both Rising and Falling Markets
- In equity Delivery trading, you make money only when
stock prices go up. In intraday you can trade both sides.
- In F&O, you can profit from both upward (bullish)
and downward (bearish) market movements.
- For example, if you expect a stock to fall, you can
sell futures or buy put options.
D. Hedging Against Market Volatility
- F&O contracts are widely used for hedging.
Investors and institutions use them to protect their portfolios from
adverse price movements.
- For example, if you own stocks and fear a market
decline, you can buy put options as insurance.
E. Lower Capital Requirement
- Trading in F&O requires less upfront capital
compared to buying the same value of stocks in the cash market.
- This makes F&O accessible to a wider range of
traders.
Key Regulatory Changes in 2025: What’s New?
The popularity of F&O
has also led to concerns about excessive speculation and retail losses. To
address this, regulators have introduced several changes in 2025:
- Increased Contract Size: Minimum contract value for index options has been
raised from ₹5–10 lakhs to ₹15–20 lakhs, making it harder for small
traders to participate with very low capita.
- Single Weekly Index Contract: Exchanges can now offer only one weekly F&O
contract per index, reducing excessive speculation.
- Removal of Margin Benefits on Expiry Day: Margin benefits on expiry day have been removed,
increasing the capital required to hold positions till expiry.profitmart
- Addition and Exclusion of Stocks: The list of stocks eligible for F&O trading
is regularly updated to ensure only liquid and stable stocks are included.
- Change in Expiry Day: From
April 2025, monthly F&O contracts now expire on the last Monday of the
month instead of Thursday, aligning with global practices.
These changes aim to
strengthen market structure, improve transparency, and protect retail
investors.
Risks and Realities: What the Latest Data Shows
While the features of
F&O trading are attractive, the reality is that most retail traders lose
money. According to a 2024 SEBI study:
- Only 7% of individual F&O traders made a profit
over the last three years.
- 93% of traders lost money, with an average loss of ₹2
lakh per trader (including transaction
costs)4.
- Total losses by retail traders in F&O markets
reached ₹1.81 lakh crore between
FY22 and FY244.
- The top 3.5% of loss-makers averaged a staggering ₹28
lakh loss each4.
- Despite losses, more than 75% of losing traders
continued to trade, indicating the addictive nature of derivatives trading4.
"Despite popular
claims on social media and by 'finfluencers' that options trading can easily
yield daily profits, the reality for most traders is far different."
·
SEBI Study, 2024 Indiatoday
F&O vs Equity Trading: A Clear Comparison
| Feature | F&O Trading | Equity Trading |
|---|---|---|
| Ownership | No ownership of shares | Ownership of company shares |
| Leverage | High (margin-based) | Low (full payment required) |
| Profit from Downtrend | Yes (short selling, put options) | Limited (intraday shorting only) |
| Liquidity | Very high (especially in indices) | Variable (depends on stock) |
| Capital Requirement | Low (margin only) | High (full value of shares) |
| Risk | Very high (can lose more than invested) | Limited to amount invested |
| Hedging | Yes (widely used for hedging) | No |
| Regulatory Changes | Frequent, stricter in recent years | Stable |
| Popularity | Increasing rapidly (esp. among traders) | Preferred by investors |
Why Is F&O Still Preferred Despite the Risks?
A. Potential for Quick, High Returns
- The possibility of making large profits in a short time
attracts many traders, especially those with smaller capital.
B. Accessibility and Lower Entry Barriers
- Lower margin requirements make it easier for
individuals to participate compared to buying stocks outright.
C. Flexibility in Strategies
- F&O offers a range of trading strategies (hedging,
speculation, arbitrage) that are not possible in the cash market.
D. Market Trends and Social Influence
- Social media, trading groups, and 'finfluencers' often
highlight success stories in F&O, fueling further interest.
Recent Trends: Regulatory Crackdown and Changing Participation
- After SEBI’s new rules in late 2024, there was a 20%
drop in retail option traders and a decline in the number of
contracts traded. Economic times
- The increased contract size and stricter rules are
intended to curb excessive speculation and protect small investors.
- Despite this, F&O trading remains the largest
segment by turnover, indicating sustained interest among active traders.
The Global Perspective
- India now has one of the largest and most active
derivatives markets globally, with unique features like weekly expiries
and high retail participation.
- Regulatory changes (like the shift to Monday expiry)
are aligning India’s market with global standards.
Should You Trade F&O or Stick to Equity?
F&O trading is not
for everyone. It is best suited
for experienced traders who understand the risks, have a disciplined strategy,
and can afford potential losses. Beginners should be cautious, start small, and
consider learning through virtual trading or with limited capital.
Equity trading is more suitable for long-term investors
seeking ownership, dividends, and steady wealth creation with lower risk.
Also Read: How to select stocks for Intraday
Key Takeaways
- F&O trading is preferred for its high leverage,
liquidity, and the ability to profit in any market direction.
- It requires less capital upfront but comes with much
higher risk.
- Recent SEBI data shows that 93% of retail F&O
traders lose money, so caution is essential.
- Regulatory changes in 2025 are making F&O trading
safer but also raising entry barriers for small traders.
- Equity trading remains the foundation for long-term investing, while F&O is best for advanced traders with proper risk management.
Final Word
F&O trading offers
exciting opportunities but is not a guaranteed path to wealth. The data and new
regulations clearly show that while the potential for high returns exists, the
risks are even higher. If you are a beginner, focus on learning, start small,
and never trade with money you cannot afford to lose. For most investors, a
balanced approach combining equity investments with limited, well-understood
F&O exposure (mainly for hedging) is the safest route.
Sources
SEBI Study- Indiatoday
NSE Turnover Data- Economic times
