What is F&O trading?

F&O trading refers to trading in futures and options, which are derivative contracts whose value is based on an underlying asset, most commonly a stock index like Nifty or Bank Nifty, or an individual stock, rather than owning the asset itself. A futures contract obligates both the buyer and seller to transact at a set price on a future date, while an options contract gives the buyer the right, but not the obligation, to buy or sell at a set price before expiry, in exchange for paying a premium. F&O is traded in standardised lot sizes set by the exchange, not individual shares, and requires margin, a portion of the total contract value, rather than full upfront payment. It’s a genuinely higher-risk segment than plain equity delivery investing, since leverage magnifies both gains and losses, which is why SEBI requires separate F&O segment activation with income proof before a broker allows trading in it.