SEBI New F&O Trading Exam move aims to ensure that traders have the necessary knowledge and skills to make informed decisions and mitigate financial risks.
Recognizing the need for greater awareness and responsible trading, the Securities and Exchange Board of India (SEBI) is thinking of conducting an exam for traders who wish to participate in F&O trading.
Whether it’s going to happen or not is not yet confirmed but as an trader you should be ready therefore in this guide, It present 80 essential questions and answers covering everything from basic concepts like call and put options to advanced strategies such as iron condors and short squeezes.
Whether you’re preparing for the SEBI exam or looking to enhance your trading skills, this article on SEBI New F&O Trading Exam will provide you with the insights you need to navigate the Indian F&O market confidently.
Futures and Options (F&O) trading in India has gained immense popularity among traders and investors due to its potential for high returns, hedging opportunities, and leverage.
However, it also carries significant risks, making it essential for traders to have a strong understanding of contract structures, risk management, and trading strategies.
Incase if you want to read and understand the core concepts in very detailed form then you can do so by clicking below links which are created for in depth knowledge on Futures and options trading in India.
How to read option chain data?
ITM, ATM OTM (option moneyness) explained with examples
What is Delta in options trading?
How to use Gamma for options trading?
What is Theta in options trading?
Futures trading explained with examples
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Below are 80 questions with answers related to Futures and Options (F&O) trading in India. These questions cover the basics as well as important aspects that traders should know before starting F&O trading.
Basic Concepts of Futures & Options
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What is derivatives trading?
Derivatives trading involves contracts whose value is derived from an underlying asset, such as stocks, indices, or commodities. -
What are the types of derivatives?
The main types are futures, options, forwards, and swaps. In India, futures and options are the most commonly traded derivatives. -
What is the difference between spot and derivatives markets?
- Spot market: Assets are bought and sold for immediate delivery.
- Derivatives market: Contracts are traded for future settlement.
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What is the difference between futures and forwards?
- Futures contracts are standardized and traded on exchanges.
- Forwards contracts are customized and traded over-the-counter (OTC).
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What are index futures?
Index futures are futures contracts where the underlying asset is a stock market index like NIFTY 50 or BANK NIFTY. -
What are index options?
Index options are options contracts where the underlying asset is a stock market index. These include NIFTY 50 options and BANK NIFTY options. -
What are weekly and monthly options?
- Weekly options expire every Thursday of the week.
- Monthly options expire on the last Thursday of the month.
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What is an options premium?
The premium is the price paid by the buyer of an option to the seller (writer) for acquiring the right to buy or sell the underlying asset. -
What is the strike price in options trading?
The strike price is the predetermined price at which an option contract can be exercised. -
What is an option’s expiration date?
The expiration date is the last date on which the option can be exercised or settled. -
What is a Futures contract?
A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specified future date. -
What is an Options contract?
An options contract gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price before or at the expiry date. -
What are Call and Put options?
- A Call option gives the buyer the right to buy an asset at a specified price.
- A Put option gives the buyer the right to sell an asset at a specified price.
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What is the lot size in futures and options trading?
Lot size refers to the minimum quantity of an asset that must be traded in a single contract. -
What is the expiry date in F&O contracts?
It is the date on which the contract ceases to exist and must be settled. -
What is the difference between European and American options?
- European options can be exercised only on the expiry date. (Indian are EU type options)
- American options can be exercised any time before the expiry.
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What is the underlying asset in F&O contracts?
The underlying asset can be stocks, indices, commodities, or currencies. -
What is Open Interest (OI)?
Open Interest is the total number of outstanding F&O contracts that have not been settled. -
What is the significance of Open Interest in trading?
High Open Interest indicates strong market participation and potential price movement. -
What are in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM) options?
- ITM: The option has intrinsic value (e.g., Call: Strike < Market Price).
- ATM: The strike price is equal to the market price.
- OTM: The option has no intrinsic value (e.g., Call: Strike > Market Price).
Margin & Risk Management
21. What is position sizing in F&O trading?
Position sizing refers to determining the amount of capital allocated per trade to manage risk effectively.
22. What is stop-loss in options trading?
A stop-loss is an order placed to limit potential losses by exiting a trade at a predetermined price.
23. What is the maximum loss in a futures trade?
The loss in futures trading can be unlimited if the market moves significantly against the trader.
24. What is hedging with options?
Hedging involves using options to protect an existing position from adverse market movements.
25. What is the biggest risk in selling (writing) options?
Selling options can lead to unlimited losses, especially in naked option selling.
26. What is margin in futures trading?
Margin is the amount of money a trader must deposit to initiate and maintain a futures position.
27. What is the difference between initial margin and maintenance margin?
28. Initial margin is the upfront payment to enter a position.
29. Maintenance margin is the minimum amount that must be maintained to keep the position open.
30. What is Mark-to-Market (MTM) in futures trading?
MTM is the daily settlement of profits and losses based on the closing price.
31. How can an options trader reduce risk?
By using stop-loss orders, hedging strategies, and proper position sizing.
32. What is hedging in F&O trading?
Hedging is a risk management strategy where F&O contracts are used to offset potential losses in an investment.
33. What is leverage in futures trading?
Leverage allows traders to control large positions with a relatively small margin deposit.
34. What is theta decay in options?
Theta decay refers to the reduction in the option’s value as it approaches expiry.
35. What is implied volatility (IV)?
IV measures the market’s expectations of future volatility.
36. How does high IV impact option premiums?
High IV increases option premiums due to increased uncertainty.
37. What happens if an options contract is not squared off before expiry?
ITM options are automatically settled.
OTM options expire worthless.
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F&O Trading Strategies
38. What is the Straddle strategy?
A straddle involves buying both a call and a put option at the same strike price to profit from volatility.
39. What is the Strangle strategy?
A strangle involves buying a call and a put at different strike prices to profit from high volatility.
40. What is the Iron Condor strategy?
It is an advanced strategy that involves selling an OTM call and put while buying a further OTM call and put.
41. What is Covered Call strategy?
A covered call involves holding the underlying asset while selling a call option to generate premium income.
42. What is a Protective Put?
A protective put involves buying a put option while holding the underlying asset to hedge against downside risk.
43. What is a Calendar Spread?
A calendar spread involves buying and selling options of the same strike price but with different expiry dates.
44. What is a Butterfly Spread?
A butterfly spread involves using multiple strike price options to limit risk and profit from low volatility.
45. What is a Ratio Spread?
A ratio spread involves buying and selling options in an unequal ratio to take advantage of price movement.
46. What is a Synthetic Position?
A synthetic position replicates the payoff of a futures or options contract using other instruments.
47. What is a Box Spread?
A box spread is an arbitrage strategy involving a combination of bull and bear spreads.
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Regulations & Compliance
48. Who regulates the F&O market in India?
The Securities and Exchange Board of India (SEBI) regulates F&O trading.
49. What is the role of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) in F&O trading?
NSE and BSE are the primary exchanges where F&O contracts are traded.
50. What is STT (Securities Transaction Tax) in F&O trading?
STT is a tax levied on the purchase and sale of securities, including F&O contracts.
51. Is F&O trading allowed in all stocks?
No, only SEBI-approved stocks are allowed for F&O trading.
52. What is the penalty for short-margin reporting?
SEBI imposes penalties for non-maintenance of required margins.
53. What is physical settlement in F&O trading?
Physical settlement requires traders to deliver the underlying asset instead of cash settlement.
54. Can retail traders participate in F&O trading?
Yes, but they must have a trading account and sufficient margin.
55. What is the maximum validity of a futures contract?
Typically, the maximum duration is three months.
56. Are F&O profits taxable in India?
Yes, F&O income is treated as business income and taxed accordingly.
57. Can NRIs trade in F&O in India?
Yes, but they must comply with RBI and SEBI guidelines.
Market Indicators & Analysis
58. What is the role of the VIX (Volatility Index)?
The VIX measures market volatility expectations and is also known as the “fear index.”
59. What is the PCR (Put-Call Ratio)?
PCR is a sentiment indicator calculated as the ratio of put open interest to call open interest.
60. What is Delta in options trading?
Delta measures how much an option’s price will change for a ₹1 change in the underlying asset.
61. What is Gamma in options trading?
Gamma measures the rate of change of Delta.
62. What is Vega in options trading?
Vega measures the sensitivity of an option’s price to changes in implied volatility.
63. What is Rho in options trading?
Rho measures the sensitivity of an option’s price to interest rate changes.
64. What is a Break-even point in options?
The price at which an option strategy neither makes a profit nor incurs a loss.
65. What is Option Chain Analysis?
It is the study of all available strike prices, OI, and premiums for a given stock/index.
66. How does news impact F&O trading?
Corporate earnings, government policies, and global events significantly affect F&O markets.
67. Why is liquidity important in F&O trading?
Higher liquidity ensures smooth trade execution and tighter bid-ask spreads.
Advanced Concepts & Trading Mistakes
68. What is the maximum loss in buying an options contract?
The maximum loss is limited to the premium paid for the option.
69. What is the maximum profit in selling (writing) an options contract?
The maximum profit is limited to the premium received, but potential losses can be unlimited.
70. What happens when a futures contract reaches expiry?
It is either cash-settled or physically settled, depending on the contract type.
71. Why do most options traders lose money?
Due to factors like time decay, high leverage, improper risk management, lack of strategy, and emotional trading.
72. What is a synthetic future position?
A synthetic future position is created using options (buy call + sell put at the same strike price).
73. What is the impact of corporate actions like dividends on F&O contracts?
The exchange adjusts the strike price and contract specifications to reflect the corporate action.
74. Can a stock be removed from F&O trading?
Yes, SEBI can ban or remove stocks from F&O trading if liquidity drops or regulations change.
75. What is a short squeeze in F&O trading?
A short squeeze occurs when excessive short positions lead to a rapid price surge due to forced buying.
76. How does the rollover of futures contracts work?
Traders close their current month contracts and enter into next-month contracts before expiry.
77. What is the role of FIIs (Foreign Institutional Investors) in F&O trading?
FIIs contribute significantly to market liquidity and price movements in the derivatives segment.
78. What is the impact of corporate earnings on F&O trading?
Earnings reports can cause high volatility in stock options and futures.
79. What happens when a stock is banned in F&O trading?
No new contracts can be initiated until the stock is removed from the ban list.
80. What is a circuit breaker in stock markets?
A mechanism that halts trading when an index moves beyond a certain percentage.
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Conclusion:
Futures and Options (F&O) trading in India offers immense opportunities but also comes with significant risks. Whether you are trading for hedging, speculation, or income generation, understanding the fundamentals, risk management techniques, and market dynamics is crucial for success.
By mastering key concepts such as option pricing, margin requirements, volatility, and trading strategies, traders can make informed decisions and minimize losses. Additionally, staying updated with SEBI regulations, market trends, and corporate actions can help in navigating the ever-changing derivatives market effectively.
While F&O trading can be highly rewarding, discipline, strategy, and continuous learning are essential for long-term success. Whether you’re a beginner or an experienced trader, this guide provides a solid foundation to help you trade confidently in the Indian derivatives market.
Happy Trading! 📈🚀
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Disclaimer
The information provided in this article is for educational and informational purposes only and should not be considered as financial or investment advice. Trading in Futures & Options (F&O) involves significant risk, and individuals should conduct their own research or consult with a certified financial advisor before engaging in derivatives trading.
SEBI’s new F&O trading exam although still it’s not confirmed yet aims to promote responsible trading and awareness, but passing the exam does not guarantee success or profitability in trading. Market conditions, regulatory changes, and individual risk appetite must always be considered.
Neither the author nor the publisher is responsible for any financial losses incurred based on the information provided in this article. Readers are encouraged to stay updated with SEBI guidelines, stock exchange regulations, and market trends before making trading decisions.
Trade responsibly and invest wisely!
