Risk on Derivatives

Last updated: June 2026

Important risk warning

Derivative instruments, including Futures and Options (F&O), involve a high degree of risk and may not be suitable for all investors. Investors should carefully understand the nature of derivatives and the associated risks before trading.

Key risks of derivatives trading

Leverage risk

Derivatives provide leveraged exposure. Small movements in the underlying asset can result in significant gains or losses.

Loss risk

Trading in derivatives can result in substantial losses. In certain situations, losses may exceed the initial margin deposited.

Time decay risk (Options)

Options are time-sensitive instruments. Option buyers may lose the entire premium paid if the expected market movement does not occur before expiry.

Volatility risk

Unexpected market events and rapid price fluctuations can significantly impact derivative positions.

Liquidity risk

Certain contracts may experience lower liquidity, making it difficult to enter or exit positions at desired prices.

Gap risk

Markets may open significantly higher or lower due to overnight developments, resulting in losses beyond anticipated levels.

SEBI investor advisory

As per SEBI’s study on individual traders in the equity Futures & Options segment:

Investors are advised to carefully assess their financial situation, investment objectives, and risk tolerance before participating in derivatives trading.

Research disclaimer

Any derivative-related research, analysis, market commentary, or recommendations provided by Navkar Research:

• Are subject to market risks.
• Do not assure or guarantee profits or returns.
• May not be suitable for every investor.
• Should be evaluated independently before acting upon.

Investor responsibility

Before trading derivatives, investors should:

• Understand the product and associated risks.
• Use appropriate risk management practices.
• Trade only with capital they can afford to risk.
• Seek professional advice where necessary.

Regulatory disclosure

Navkar Research — SEBI Registered Research Analyst (Reg. No. INH000022738, BSE Enlistment No. 6756). For any clarification regarding this document, please contact us.