F&O (Futures and Options) are financial derivatives that allow investors and traders to speculate on or hedge against the future price movements of underlying assets such as stocks, indices, commodities, or currencies. These instruments derive their value from the price of the underlying security and are widely used in financial markets for risk management and portfolio diversification.

Futures are standardized contracts that obligate the buyer to purchase and the seller to sell an underlying asset at a predetermined price on a specified future date. Futures trading takes place on regulated exchanges, ensuring transparency and standardization. They are commonly used by investors to hedge against price fluctuations or to speculate on expected market movements. However, since futures are leveraged instruments, even small price changes can result in significant gains or losses.

Options, on the other hand, give the holder the right but not the obligation to buy or sell an underlying asset at a specific price (called the strike price) before or on a certain date. There are two types of options ó Call Options (which give the right to buy) and Put Options (which give the right to sell). The buyer pays a premium to the seller for this right. Options are used not only for hedging but also for creating income strategies or speculating on volatility.

Both futures and options are part of the derivatives segment and are crucial for managing market risks. For example, institutional investors may use F&O to hedge portfolios, while retail traders may use them to take directional bets with limited capital. However, due to the leverage involved, these instruments carry substantial risk, and participants must fully understand their functioning and potential outcomes before trading.

In India, F&O trading is regulated by the Securities and Exchange Board of India (SEBI) and conducted on exchanges like NSE and BSE. When used prudently, F&O can be an effective tool for managing risk and optimizing returns in a diversified investment strategy.