NISM-Series-VIII: Equity Derivatives · Trading Mechanism

Charges, Trade Confirmation and Contract Notes in F&O

Updated 11 October 2026 · Fact-checked

Every F&O trade carries costs: brokerage, exchange transaction charges, SEBI turnover fee, GST, stamp duty and STT. After the trade, the broker must issue a contract note as the legal record. To solve questions, identify the charge, what it is levied on, who pays, and which document confirms the trade.

Understand Charges, Trade Confirmation and Contract Notes

When you trade futures or options, you do not pay only the price of the contract. You also pay a set of charges. Some go to your broker, some to the exchange, some to the regulator and some to the government.

Brokerage is the fee your broker charges for executing the trade. It is agreed with you and is subject to a ceiling set by SEBI and the exchanges for the segment. Transaction charges are levied by the exchange on the traded turnover. The exchange publishes them, and the broker collects them from you. SEBI also charges a small turnover fee. GST is charged on brokerage and on these service-type charges (exchange transaction charges, SEBI turnover fee and any other service charges). It is not charged on the trade value, on STT or on stamp duty.

Securities Transaction Tax (STT) is a tax collected on taxable securities transactions on a recognised exchange. In derivatives it is levied on the sell side for futures and on the sell side of options (on the premium). The buyer pays no STT when buying a futures contract or an option. When an in-the-money option is exercised, STT is levied on the buyer, on the settlement (intrinsic) value. Stamp duty is levied on the buy side only, on the traded value (futures turnover; option premium). The seller pays none, so it falls on the opposite side from STT. Since July 2020 it has been charged at uniform rates across states. The exchange or clearing corporation collects it on behalf of the state governments. Use the rate given in the question; rates change with the Finance Act.

After each trade you receive a trade confirmation. The exchange system generates a trade slip or order and trade confirmation. The legal document is the contract note. It is issued by the broker to the client within 24 hours of execution of the trades. It generally shows each trade, price, quantity, time, brokerage and the levies.

The contract note is generally expected to carry the broker's SEBI registration details, the client's unique client code, trade and order details, and an authorised signature (or a digital signature if it is electronic). Keep it as proof of the trade and for tax and dispute purposes.

Key formulas to remember

Turnover for futures: Turnover = Price × Lot size × Number of lots; Transaction charges and STT on futures are based on traded value.
Turnover for options (premium): Premium turnover = Premium × Lot size × Number of lots; Exchange transaction charges on options are levied on premium value, not on the strike value.
Charge on turnover: Charge = Turnover × Rate ÷ 100; Use the rate given in the question. Do not use rates from memory.
GST base: GST = GST rate × (Brokerage + Exchange transaction charges + SEBI turnover fee + any other service charges); GST is not charged on STT or stamp duty.
Contract note timing: Contract note issued within 24 hours of trade execution; Issued by the broker to the client. It generally carries the client code and the broker's registration details.
STT side: Futures: STT on sell side; Options: STT on sell side premium; Exercise of in-the-money option: STT on buyer, on settlement (intrinsic) value; Buyers pay no STT on buying futures or on purchasing an option. The buyer pays STT only when an in-the-money option is exercised.

How to solve Charges, Trade Confirmation and Contract Notes questions

Most questions test who charges what, on which base, or what a contract note must contain. Use this method.

1Read the question and decide if it asks for a calculation, a definition or a document rule.
2Identify the charge: brokerage, transaction charge, SEBI fee, GST, STT or stamp duty.
3Find the base: futures use contract value, options use premium (unless the question says exercise). Stamp duty uses futures turnover or option premium.
4Identify the side: STT is on the sell side, stamp duty on the buy side.
5Use the rate given in the question, because rates change with the Finance Act. Compute turnover × rate ÷ 100.
6Add GST only on brokerage and service-type charges (exchange transaction charges, SEBI turnover fee, other service charges), not on STT or stamp duty.
7For document questions, recall the contract note features: serial number, client code, broker registration, signature, 24-hour rule.
8Eliminate options that swap the buyer and seller or the base.

Quickest way: Charge, base, side in 10 seconds

When to use it: Use when a numerical option looks long and time is short.

Write turnover first: price × lot × lots, or premium × lot × lots.
Note the side: if you are buying, STT does not apply on futures or option purchase.
Apply the given rate to turnover, then check the decimal places.
If GST is asked, apply it only to brokerage, exchange transaction charges, SEBI fee and other service charges, never to STT or stamp duty.
Pick the option that matches and discard those using strike value for options.

Common mistakes in Charges, Trade Confirmation and Contract Notes

Applying option charges on strike price × lot instead of premium × lot.
Students treat options like futures.
Fix: For options, the base is premium. Use strike value only when the question is about exercise.
Charging STT on both buyer and seller.
Students assume taxes apply to both sides.
Fix: Remember STT in futures and options sale is on the sell side. Buyers do not pay it on buying futures or purchasing options. The exception is exercise of an in-the-money option, where the buyer pays STT on the settlement value.
Adding GST on STT or stamp duty.
GST is thought to apply to every charge.
Fix: GST applies to brokerage and service-type fees, not to taxes like STT and stamp duty.
Confusing the trade confirmation slip with the contract note.
Both prove a trade took place.
Fix: The contract note is the legal document issued by the broker. A slip is only an interim confirmation.
Mixing up the contract note deadline.
Students recall settlement timelines like T+1.
Fix: Contract note is due within 24 hours of execution. Do not confuse it with settlement.
Using remembered tax rates when the question gives different ones.
Rates change and old figures stick in memory.
Fix: Always use the rate stated in the question. Learn the rule and the base, not just the number.

Worked examples

Example 1

A client buys 2 lots of a stock future at ₹500. Lot size is 1,000. The exchange transaction charge is 0.002% of turnover. What is the transaction charge?

Show the solution

Turnover = 500 × 1,000 × 2 = ₹10,00,000.
Charge = 10,00,000 × 0.002 ÷ 100.
10,00,000 × 0.002 = 2,000.
2,000 ÷ 100 = 20.

Answer: ₹20

Example 2

A trader sells 1 lot of a call option (lot size 500) at a premium of ₹40. STT on the sale of options is 0.1% of premium. How much STT does the trader pay?

Show the solution

Premium turnover = 40 × 500 × 1 = ₹20,000.
STT = 20,000 × 0.1 ÷ 100.
20,000 × 0.1 = 2,000.
2,000 ÷ 100 = 20.

Answer: ₹20, paid by the seller of the option

Exam tips

Expect direct questions on which side pays STT and stamp duty. Learn the sides, not just the rates.
For option charges, always spot whether the base is premium or exercise value.
Contract note questions test its features: broker registration details, client code, trade and order details, authorised signature.
Wrong answers carry negative marking of 25% of the marks assigned to the question; attempt a question only if you can eliminate options or are fairly sure.
Use the rate given in the question even if it differs from what you remember.

Practice questions from Trading Mechanism

Charges, Trade Confirmation and Contract Notes: frequently asked questions

Who pays STT on futures?

The seller pays STT on futures. It is levied on the sell-side traded value. The buyer does not pay STT on the purchase. In options, the buyer also pays no STT on purchase, but pays STT on the settlement value if an in-the-money option is exercised.

What is a contract note?

It is the legal document issued by the broker to the client for trades executed. It lists each trade with price, quantity, brokerage and levies, and generally carries the client code and the broker's registration details.

When must a broker issue the contract note?

The broker must issue it to the client within 24 hours of execution of the trades. It can be physical or electronic. It is generally expected to carry an authorised signature, or a digital signature if it is electronic.

On what are exchange transaction charges levied in options?

They are levied on the premium turnover, which is premium × lot size × number of lots. They are not based on the strike price.