‘The fear of the unknown has always triggered excitement in many a men’ – Anonymous.
What is it that excites men the most? What gives them the rush? A long drive at full speed, adrenalin filled sports, an all-in gamble? The list is endless. Whenever the outcome is unknown, it excites men. To be precise, I would like to limit the scope of this article only to FnO trading.
FnO (Futures and Options) as we know it, has been in Indian markets since 2000, which is more than a decade now. These are complex instruments designed for hedging. What makes them formidable is their leverage factor. Futures are leveraged up to five times whereas Options can be leveraged up to even 100 times and depends on several factors, the strike price being the most important one. This basic principle that by employing a very small portion of money, one is made to feel that he stands to gain up to 500% to at times 1000%, makes the FnO world exciting.
There is no doubt then that this can be a great avenue to make a good deal of money, probably a fortune. However, the question remains as to how many are able to do it successfully. It is very easy to get enticed by the amount of money one stands to make, if his/her trade is right. Therefore, most of the focus lies on what one may do with the bucket loads of money, if one makes it right, and thus, the risk factor is not taken into account. When risk is not considered in FnO trading, one not only stands to lose one’s entire capital, but also amounts more than what one initially invested. It is no surprise then that the market regulator has enforced strict KYC norms for clients who want to trade in the FnO segment.
Having said this, it in no way suggests that one should not trade in this segment. Anyone who follows good investment habits and takes care of his/her investments first may explore this segment within limits. Understanding the risks and threats and then trying to wade through the rough waters is the most prudent thing to do.
It is a misnomer when they say that ‘ships are safest at the harbour’, because this is clearly not the reason why ships are built in the first place. One should trade and expose oneself to the FnO segment by all means. Local exchanges delve in efforts to conduct educational seminars for the benefit of investors. Here, one can get an idea on different aspects of investment and trading and how to initiate it.
You can always get in touch with us if you have any queries with respect to the FnO segment. Our representative will be more than happy to get in touch with you.
Written By: Sumeet Jain, CMT
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.