How to Calculate Turnover for Future & Options Trading

Understanding turnover in Futures and Options (F&O) trading is essential for traders and investors, especially for taxation and compliance purposes. This guide offers an in-depth explanation of what turnover means in F&O trading, how to calculate it correctly, and why it matters for your investment strategy.

Futures and Options are popular derivatives instruments in the stock market. These contracts derive their value from an underlying asset such as stocks, indices, commodities, or currencies.

• Futures are agreements to buy or sell an asset at a predetermined price on a specific future date.
  

• Options give the buyer the right, but not the obligation, to buy or sell the underlying asset at a set price before a specific date.

Both instruments are widely used for hedging and speculative purposes. Unlike equity trading, F&O trading involves leverage and a defined contract size, which significantly influences turnover calculations.

Turnover in the context of F&O trading refers to the total value of transactions carried out over a period. It represents the sum of the absolute values of all buy and sell trades executed by a trader.

• Turnover in F&O is not the same as turnover in equity trading, where it typically means the total value of shares traded.
  

• It includes both sides of the trade, i.e., both the purchase and sale transactions.

Understanding turnover is vital as it determines the calculation of taxes like Securities Transaction Tax (STT) and also influences the assessment of short-term capital gains.

Calculating turnover in F&O involves understanding the distinct components of both Futures and Options contracts:

Turnover in Futures Contracts

• Calculated by adding the absolute value of the buy and sell trades.
  

• Takes into account the contract size (lot size) and the price at which contracts are traded.
  

• For example, if you buy 2 contracts of a Futures instrument at ₹1,000 each and sell 2 contracts at ₹1,050 each, your turnover is calculated as:
  (2 × lot size × ₹1,000) + (2 × lot size × ₹1,050).

Turnover in Options Contracts

• Includes the total premium paid on the buy side and the premium received on the sell side.
  

• Additionally, if options are exercised, the intrinsic value (difference between the strike price and market price) is also considered.
  

• Options turnover thus comprises:
  

  • Premium paid × lot size (buy side)
    

  • Premium received × lot size (sell side)
    

  • Intrinsic value on exercised options × lot size

The following are the steps to calculate F&O turnover:

Step 1: Calculate Futures Turnover

For futures trades, turnover is calculated by adding the absolute values of both buy and sell transactions. Multiply each by the lot size and price.

Example:
If you buy 1 lot of Nifty Futures at ₹18,000 and sell it at ₹18,300,
Turnover = ₹18,000 (buy) + ₹18,300 (sell) = ₹36,300

Step 2: Calculate Options Turnover

For options, turnover is the sum of the premiums paid and received. If the option is exercised, also include the intrinsic value.

Example:
If you sell an option for ₹100 premium and later buy it back at ₹60,
Turnover = ₹100 + ₹60 = ₹160

If the option is exercised, add the intrinsic value (difference between strike price and settlement price, if profitable).

Step 3: Total F&O Turnover

Add the turnover from both futures and options segments to arrive at the total F&O turnover.

Example:
If futures turnover is ₹36,300 and options turnover is ₹160,
Total Turnover = ₹36,300 + ₹160 = ₹36,460

Step 4: Adjustments

If contracts are held till expiry, use the settlement value (as declared by the exchange) instead of the trade price to compute turnover. This is especially relevant for options exercised or settled in-the-money.

Example:
If you hold an option that expires ITM, calculate turnover using the final settlement price published by the exchange.

To simplify, the formulas for turnover in Futures and Options are:

• Futures Turnover = Σ (Number of Contracts × Lot Size × Price per Contract)
  

• Options Turnover = Σ (Premium Paid × Lot Size) + Σ (Premium Received × Lot Size) + Σ (Intrinsic Value on Exercise × Lot Size)

Below are some reasons why knowing your F&O turnover might matter:

• Taxation: Turnover determines the calculation of turnover-based taxes and the classification of profits as business income or capital gains.
  

• Compliance: Accurate turnover calculation is necessary for filing income tax returns and adhering to regulatory reporting norms.
  

• Risk Management: Monitoring turnover helps traders manage their position sizes and margin requirements effectively.

• Ignoring lot size: Always multiply by the contract's lot size; missing this can drastically underestimate turnover.
  

• Excluding intrinsic value: For exercised options, intrinsic value must be added.
  

• Overlooking expiry adjustments: Not adjusting for expiry or settlement can cause errors.
  

• Neglecting transaction costs: Brokerage and other charges do not form part of turnover but affect net profitability.

You could use the following methods to track F&O turnover:

• Use your broker’s trade ledger and monthly statements.
  

• Online calculators provided by trading platforms.
  

• Spreadsheet templates designed to input trades and automatically calculate turnover.
  

• Financial software with automated trade tracking and tax calculations.

Calculating turnover in Futures and Options trading is a crucial task for any trader or investor involved in derivatives. It impacts taxation, compliance, and overall trading strategy. By understanding the components and formulas and avoiding common mistakes, traders can ensure accurate turnover reporting and better manage their financial positions.

This content is for educational purposes only, and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

• Securities and Exchange Board of India (SEBI) guidelines on derivatives trading
  

• Income Tax Department of India – Taxation on Futures and Options
  

• National Stock Exchange (NSE) official documentation on F&O contracts
  

• Market experts and financial educational platforms