How to Calculate Turnover in F&O Trading: Calculation, Importance and Examples

Q: 1. How often should I calculate F&O turnover?

Ans. You should calculate F&O turnover regularly, ideally after every trading session, to keep accurate records.

Q: 2. Is F&O turnover the same as profit and loss?

Ans. No, turnover reflects the total value of trades, not profit or loss.

Q: 3. Do brokerage fees count towards turnover?

Ans. Brokerage fees are not included in turnover but are part of the overall trading costs.

Q: 4. What happens if I miscalculate my turnover?

Ans. Incorrect turnover calculations can lead to inaccurate tax filings, which may result in penalties or audits.

Q: 5. Can turnover affect my eligibility for tax audits?

Ans. Yes, high turnover might attract attention from tax authorities, so accurate calculation is essential.

Understanding how to calculate turnover in Futures and Options (F&O) trading is important for accurate financial management and tax compliance. Whether you’re a beginner in F&O trading or looking to enhance your strategy, this blog will first explain what F&O turnover is and then walk you through the steps of the calculation process with a real-world example. Knowing how to do this correctly helps you stay on top of your trading activities and ensures you’re meeting all necessary financial obligations.

What is F&O Turnover?

F&O turnover refers to the total value of all trades you make in the Futures and Options market. When you trade in F&O, every transaction you do, whether buying or selling, contributes to the turnover. The turnover is calculated differently for futures and options.

For futures, it’s the sum of the buy and sell prices. For options, it’s the total of the premiums you pay and the prices at which you sell the options. Knowing your F&O turnover is essential because it helps you understand the scale of your trading activities and is necessary for tax calculations.

Calculation of F&O Turnover

There are 3 types of futures and options. Futures include stock, index, and commodity while options are call, put, and stock. For Futures & Options (F&O) trading, turnover is calculated differently for futures and options transactions. Here’s how to calculate F&O turnover :

1. Futures Turnover

For each futures trade, you need to calculate the turnover by adding the absolute values of the buy and sell transactions.
For example, if you purchase a futures contract for ₹1,00,000 and later sell it for ₹1,10,000, your turnover is the sum of both transactions: ₹1,00,000 (buy) + ₹1,10,000 (sell) = ₹2,10,000.

Each transaction, whether it’s a profit or loss, contributes to the total turnover.

2. Options Turnover

When dealing with options, the turnover calculation involves adding the premiums paid for buying options and the amounts received from selling them.
Let’s say you buy an option with a premium of ₹5,000. Later, you sell that option for ₹10,000. The turnover is calculated by adding these two amounts: ₹5,000 (premium paid) + ₹10,000 (sale price) = ₹15,000.

If you only purchase options and do not sell them, your turnover would be the sum of all premiums paid.

3. Total F&O Turnover

To get your total F&O turnover, you add the turnovers from all your futures and options trades. This includes every single trade you make, whether it’s a small or large transaction. It’s important to keep a detailed record of each trade to ensure accurate turnover calculation.

Also Read: What is a New Fund Offer (NFO)?

Example to Calculate Turnover for F&O Trading

Let’s say you engage in the following trades:

1. Futures Trading

Suppose you buy a futures contract for ₹2,00,000 and sell it for ₹2,20,000. Turnover for this trade is calculated by adding the buy and sell values: ₹2,00,000 (buy) + ₹2,20,000 (sell) = ₹4,20,000.

2. Options Trading

Imagine purchasing an option with a premium of ₹10,000 and later selling it for ₹15,000. The turnover for this options trade is the sum of the premium paid and the selling price: ₹10,000 (premium) + ₹15,000 (selling price) = ₹25,000.

Additionally, you buy another option with a premium of ₹8,000 but do not sell it. The turnover for this trade is just the premium paid: ₹8,000.

3. Total F&O Turnover

Now, add up all the turnovers from the futures and options trades.

Futures turnover: ₹4,20,000 and Options turnover: ₹25,000 + ₹8,000 = ₹33,000

Therefore, Total F&O turnover: ₹4,20,000 (futures) + ₹33,000 (options) = ₹4,53,000.

This total of ₹4,53,000 represents your F&O turnover, which you would use for tax reporting and to determine if you need an audit.

The Expiry Date in Derivatives Trading

In India, the Securities and Exchange Board of India (SEBI) regulates every F&O contract and has set the last Thursday of every month as the F&O expiry date. Expiry day trading refers to buying or selling options contracts on their final day of validity, aiming to profit from rapid price fluctuations. Traders involved in expiry-day trading look for opportunities as market volatility is high today. SEBI has standardised the expiration date of F&O to ensure a smoother trading experience for investors, reducing confusion and unintentional losses.

What Happens on the Expiry Date of F&O?

Here is what happens to a futures and options (F&O) contract on the expiration date:

Futures contract

You need to fulfill the contract on the expiration date. You can buy another futures contract on the current contract’s expiration date. For example, suppose you have purchased a futures contract to buy 1000 shares of ABC company. In that case, you can purchase another futures contract to sell 1000 shares of ABC company, which will nullify the first contract, and you only need to pay the price difference. Also, you can pay the cash settlement required to fulfil the futures contract to settle the contract.

Options contract

In an options contract, you have the right but not the obligation to exercise the contract. Therefore, you can choose not to exercise the contract at the time of expiry, which will expire without any obligations. The only cost you need to pay is the premium paid to the dealer when buying the options contract.

Moreover, Expiry day option trading strategies such as Long Straddles & Short Straddles and Long Strangles & Short Strangles play a crucial part in Futures and Options (F&O) trading, specifically on the expiry date. They help traders capitalise on the unique market movements when derivative contracts expire.

Why Is It Important To Calculate F&O Turnover?

Calculating F&O turnover is important for several reasons:

Benefits	Explanation
Accurate Tax Reporting	F&O Turnover helps determine the total value of trading activities, which affects tax calculations. Knowing this amount is essential for filing taxes correctly.
Managing Trading Portfolio	Understanding turnover provides insight into the scale of trading activities. It helps in evaluating trading strategies and assessing performance, enabling informed investment decisions.
Financial Planning	Tracking turnover is crucial for budgeting and understanding the impact of trading on personal finances. It helps recognise increasing trading volume, which may require adjusting strategies or managing risks.
Compliance and Audits	Accurate turnover records are essential for properly documenting trading activities. This ensures compliance and is important in the case of audits or regulatory reviews.

Common Mistakes to Avoid When Calculating F&O Turnover

Here are some common mistakes to avoid for accurate turnover calculations in trading:

Common Mistakes	Explanation
Mixing Up Buy and Sell Values	Ensure that buy and sell values are correctly added for each trade, separately recording both. Mixing them up can lead to inaccurate turnover figures.
Ignoring Premiums for Options	Always include all premiums paid and received for options trades to avoid incorrect calculations. Failing to do so can skew your financial results.
Not Including All Trades	Keep a complete record and include every trade, whether futures or options, to ensure accurate turnover. Missing trades can result in an incomplete turnover calculation.
Forgetting to Combine Futures and Options	Add turnovers from both futures and options trades for a complete turnover calculation. Overlooking this can lead to significant discrepancies in your total turnover.

Conclusion

Calculating turnover in F&O trading is a crucial skill that every trader should master. It ensures that you’re not only managing your trades effectively but also staying compliant with tax laws. By following the steps and examples provided, you can calculate your F&O turnover with confidence, helping you make informed financial decisions and avoid potential pitfalls. Keep this guide handy as you continue your trading journey, and you’ll be well-prepared to handle your turnover calculations with ease.

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