Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

SEBI Revises Minimum Contract Size in Equity Derivatives to 5 Lakhs

56 sec read

SEBI today in its circular announced the minimum contract size for equity derivatives from Rs.200,000 to Rs 5,00,000 effective from 30th October 2015 (Post October 2015 Expiry).

Minimum lot size for stocks reduced to 50 and in multiple of 25 there after. For high value stocks minimum lot size fixed at 10 and multiple of 5. Index minimum lot size fixed at 10 and multiple of 5 there after.

The stock exchanges shall review the lot size once in every 6 months based on the average of the closing price of the underlying for last one month and wherever warranted, revise the lot size by giving an advance notice of at least 2 weeks to the market. Possibly New Lot size will be applicable from the post July expiry.

It is also stated in the circular that “The stock exchanges shall jointly ensure that the lot size is same for an underlying traded across exchanges.”

The move will prevent individuals and small traders from making themselves vulnerable to high-risk speculation. But on the other side it will put a full stop for small traders entering and trading the futures segment and participating in high risk naked options as the futures trading for them goes very expensive. Even the trade will be going to be expensive for full time traders and HNI clients. Also possibly this could drive large volumes to the illegal ‘dabba’ or off-market trade.

Do you think increasing the Minimum Contract Size in Equity Derivatives from 2 lakhs to 5 Lakhs will hurt your sentiment as a trader?

SEBI Circular : Review of minimum contract size in equity derivatives segment

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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12 Replies to “SEBI Revises Minimum Contract Size in Equity Derivatives to…”

  1. As a small trader I will surely get negative effect .I wii have to put very small stop loss which have high probability of being trigger.
    Rite now I use 1% sl so its around 2000-2500,but then it will be doubled to 5000.
    Most of the traders will find it difficult to manage positions .hope they will also increase lot size in nifty options.

  2. What does it mean about SEBI new step for small investors??? Can anybody suggest. Is they increase the amount of investment from 2 to 5 Lakhs

    1. Possibly lot size will be increased and so your margin placed at the brokers side will be increasing more than twice. And so the same problem for shorting options. So small traders will be forced to bet in Naked Options which is even more riskier.

  3. Issues :
    Stop Loss Management :
    Example : SBI current lot size is 1000. If I entered SBI Fut at 274 (buy), I am now in a position to keep a stop loss at say 270- 271, giving enough berth to avoid any whiplashes (quick spikes) and trade. Max loss will be 3000. Now if lot size is 2000 as per new policy, my loss is increased to 6000.
    Now I will be then forced to keep stop loss very near the purchase price (for example stop loss at 272.5) and risk being stopped out quickly and not allowing my trade to run.
    In the other hand of lot size is reduced to 500, then my loss will be reduced to 1500.

    Option Call – Due to increase in premium due to lot size doubling, investors will be forced to buy out of the money call. Buying out of the money call/puts will always end up in loss.
    Call/Put writers will now be forced to write naked calls. Before option writers can hedge using buying option. Now the increased money requirement will force people to take more risk.

    Hedging stock holdings with options/futures. – now one must have 5L stock holdings for enable to 1:1 hedging. Most retail investors will now will not be able to hedge and thus risking price erosion in their holdings. Esp during result season. It is always advisable to hedge your stock positions buy shorting futures or buying Puts or selling Calls.
    Retail investors with small stock holdings can hedge more effectively if mini sized contracts are made available.

    Day Trading – Very high speculative activity. Percentage of losers are more than success.
    Due to the new policy, more people will now be forced to take up day trading activities as they will be now forced to move from FO to day trading. They will end up making more losses. Also they will not be able to hold their positions to few days.
    Positional traders always have better probability of making money. F&O is for positional traders.

    My humble suggestion. Kindly decrease the lot size and think of increasing the margin requirements to avoid speculation. Please do not kill the livelihood/occupation of small time professional traders.

  4. By making this kind of move, SEBI is putting huge barriers to the retail traders from the stock market and made FNO only for big institutions and HNIs. On the contrary, they should reduce the lot size from Rs 200000/- to Rs 100000/-. this would enable retail traders participation. This would be beneficial for the entire trading industry right from the trader, broker, exchanges, SEBI, and and to the government as well.

    SEBI should seriously reconsider their order.

  5. This is a VERY GOOD move by SEBI to protect the stability of markets and the interests of institutional investors (who are the “real” traders). Let’s face it, most small retail traders are often ill-capitalized and ill-educated. They neither have the skills nor the money to face the risks of Futures trading and 99% of the times end up losing money.

    It is better if retail people invest in Mutual Funds rather than risk gambling in futures with their half-baked theories of trading. There’s a reason why Nifty trading belongs to the “big boys” and glad that SEBI has taken cognizance of this fact.

    It’s best that small traders stick to stocks and leave futures to people who have money, time and resources.

  6. Looks a good move as it’ll keep the very low income people away from the futures market. It might not affect the index futures market much which has low margin requirement and less fluctuations compared to individual stock futures. It might also reduce manipulation.

  7. Looks like volumes will be hit hard as the small retail traders move away from F&O and go towards MCX which is more friendly to them with initiatives like gold global and crude mini. Looks like SEBI is shooting the market in its own foot by doing initiatives like this.

  8. hi,
    how rollover will happen in october expiry….if someone have three lots of nifty and wish to continue for next month then he has to buy one lot for next month expiry?

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