Why do Indian day traders day trade F&O and not equities?

General
1

I have seen this many times that Indian intra-day traders trade NIFTY Futures, Bank NIFTY Futures etc and not equities. Is there a particular reason why they dont day trade equities?

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2

hElLO tRaDeR,

F&O is preferred over Equity for day trading mainly because of :

  1. Better Risk to Reward Ratio.

  2. Low intraday STT.

  3. Better Liquidity on F&O lots . In equity, You could be holding 2000 shares and waiting for 50 buyers to come in and buy off you in 10s and 20s.

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3

I guess, Margin is also one important factor.

4

Hi thanks for your answer. How is risk:reward ratio better than equities on intraday? Would be useful to know if you please explain.
Thanks

5

Hi, Good to know you found the info useful. Regarding your follow up question, on this video the presenter explains WHY FnO has a Better Risk Reward Ratio compared to equity you can watch from the 15 th minute to get to the point: https://www.youtube.com/watch?v=D__itHY7h7Q

6

Hi I watched the video that you mentioned. But in case of intraday trading (square off all trades the same day), how come the risk-reward ratio better? The video talks about the general risk-reward ratio of F&O that you don’t lose money more than the premium you paid. But how is that applicable for intraday trading?
I fully agree with your STT point though.

7

intraday traders are forced out of the trade before day close so they do not get a chance for price to reach their target. In the case of future, position can be held overnight till it reach target.

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Well, a short answer would be it’s convenient and profitable. F&O provides higher liquidity and higher purchasing value. A whole of say 1000 shares in F&O might cost X amount of rupees. With this X amount, you cannot purchase the 1000 shares. The amount will surely be less than 1000. Along with this, the risk factor is less as you will only have to pay a premium for the whole lot. If you have a call option and the share price falls, the premium is the only amount you’d lose, but the profit has no cap if the share price increases. It all depends on how and when you trade. Compared to equity trading, F&O provides higher returns as you actually don’t buy and sell shares compared to equity intraday trading. These are among the few reasons why most Indian day traders prefer F&O over equity for intraday trading.

9

With higher returns come greater risks. Derivatives is the riskiest instrument out there.
Also “Leverage is a double edged sword”. It takes years of discipline and hard work to be profitable consistently in derivatives. F&O is not easy!

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The main reason newbies enter into F&O segment is due to fat MTM screenshots on the social media.

There are many gurus who promise huge returns and sell dreams. Newbies without properly understanding derivates and not realising the risk with F&O, take risky trades.