Share of equity derivative segment in India FY 2023, by product

During the fiscal year 2023, 98 percent of the equity derivatives traded on the National Stock Exchange of India (NSE) were index options. In the same period, both index futures and single stock futures did not contribute to the equity derivative segment.

What are options and futures?

  Options and futures are financial instruments used in the stock market to manage risks or speculate changes in asset prices. Options grant the buyer the choice to buy or sell an asset at a predetermined price by a specified date. They are not obligatory. ‘Call options’ allow buying, while ‘put options’ allow selling. Whereas futures contracts allow individuals to buy or sell an asset at an agreed price on a future date. At expiration, futures contracts require the individual to buy or sell the underlying asset.

Why are options preferred over futures in the Indian stock market?

  Options provide greater flexibility by granting buyers the right to trade without imposing an obligation. This flexibility offers leverage, potentially resulting in significant cost savings. With limited risk, individuals can only lose the cost of the contract, ensuring losses do not surpass the initial investment. Moreover, options enable strategic maneuvers, allowing individuals to hedge positions and merge trades for strategic positioning and potentially high returns. Consequently, the combination of flexibility, cost-efficiency, risk management, and strategic potential establishes options contracts as favored financial instruments in the stock market.