Futures & Options: Wealth Creation or Destruction? | SEBI's Warning for Retail Investors | Finsherpa

Recently, SEBI Chairperson Madhabi Puri Buch raised concerns about the surge in futures and options (F&O) markets, potentially creating imbalances in the stock market. But what exactly are futures and options, and why are they important?

Futures and options are derivative instruments that derive their value from an underlying asset. They are time-bound, must be bought in specific lot sizes, and their prices move in tandem with the underlying security.

The key difference between futures and options is that futures contracts obligate both parties to buy/sell at a predetermined price, while options contracts give the right but not the obligation.

F&O instruments are crucial for hedging, speculation, and risk management. For example, a potato farmer can use a futures contract to lock in the current price and protect against price volatility.

Institutional investors use F&O for hedging, while speculators try to profit from market movements. However, this comes with high risks, especially for retail investors.

Madhabi Puri Buch's concern is that retail investors may be unaware of these risks, leading to potential financial damage. Therefore, it's essential to use futures and options wisely, focusing on enhancing your portfolio without taking unnecessary risks.

Remember, F&O can be powerful tools for wealth creation, but they can also lead to significant losses if used recklessly. Always prioritize caution and informed decision-making.


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📌Time stamps:

00:00 Intro
00:46 What are Futures and Options?
02:00 Things you need to know about F&O
03:18 Difference between Futures and Options
04:55 Who trades in F&O?


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