Risk Disclosures on Derivatives
Mandatory risk disclosures for derivative trading as per SEBI guidelines
⚠ Extremely High Risk Warning: Trading in derivatives carries substantially higher risk than investing in equities. The risk of loss in trading Futures and Options contracts can be substantial. Only risk capital should be used for derivatives trading.
1. What are Derivatives?
Derivatives are financial instruments whose value is derived from an underlying asset such as a stock, index, commodity, or currency. Common derivatives include Futures and Options (F&O) contracts traded on stock exchanges like NSE and BSE.
2. Key Risks of Derivatives Trading
- Leverage Risk: Derivatives involve leverage, meaning a small movement in the underlying asset can result in a proportionally much larger gain or loss. Entire margin can be lost in a short time.
- Unlimited Loss Risk (Futures): Futures contracts can result in losses exceeding the initial margin deposited.
- Time Decay (Options): Options lose value as they approach expiry (theta decay). Options buyers can lose 100% of the premium paid.
- Volatility Risk: High market volatility can lead to rapid and unexpected price movements.
- Liquidity Risk: Deep out-of-the-money options and far-month contracts may have poor liquidity.
- Settlement Risk: Physical settlement of single-stock derivatives requires delivery of shares.
- Gap Risk: Market gaps at opening can bypass stop-losses.
3. SEBI Mandated Risk Disclosure Statement
"9 out of 10 individual traders in equity Futures and Options Segment incurred net losses. On average, loss makers registered net trading losses close to ₹50,000. Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs. Those making net trading profits, incurred between 15% to 50% of such profits as transaction costs."
(Source: SEBI Study on Profit and Loss of Individual Traders dealing in equity F&O Segment)
4. Research on Derivatives
Any technical analysis or market commentary on derivatives provided by N.S. Fidai:
- Is for informational purposes only and not a recommendation to trade.
- Does not account for individual investor risk tolerance, financial condition, or investment objectives.
- Carries the same market risk disclosures as equity research.
- Should not be acted upon without independent assessment of suitability.
5. Investor Advisory
- Derivatives are suitable only for sophisticated investors who understand the risks.
- Never trade derivatives with borrowed money or essential living funds.
- Maintain adequate margin at all times to avoid forced liquidation.
- Use stop-loss orders to limit potential losses.
- Consult a SEBI registered Investment Adviser before trading derivatives.
6. Regulatory References
- SEBI (Derivatives Market) Circular and relevant F&O regulations
- NSE Circular on Risk Disclosure for Derivatives
- BSE Circular on derivatives trading requirements
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Regulated by Securities and Exchange Board of India (SEBI) under SEBI (Research Analysts) Regulations, 2014.
Last Updated: 26th April 2026