How is the futures & options (F&O) segment different from the cash market?
In the F&O segment, you can take a much higher exposure than the capital that you put in. For example, for Rs 2 lakh of capital, you can take an exposure worth Rs 10-20 lakh of shares. But in the cash market, you can buy shares for only Rs 2 lakh. So, when the market does tank, the losses you can make are much bigger than the capital invested in the F&O segment.
Is it advisable for retail investor to participate in it?
It definitely does make investing in F&O very risky. Typically, traders and sophisticated investors participate in derivatives, as they have additional funds or stocks or the wherewithal to raise additional money. In addition, F&O requires constant monitoring, which a retail investor cannot do. At best, invest 1-2 per cent through this route.
