Less is more – Bank Nifty lot size reduced3 min read
The lot size reduction of Bank Nifty contracts from 25 qty to 15 qty from July 2023 expiry onwards is a significant development that will have a positive impact on traders and investors. This change is going to benefit traders and hedgers in more than one way. Following are the changes that will be implemented from the July contracts.
- All Bank Nifty monthly expiry contracts starting from the July expiry contract will have a lot size of 15 qty. The Bank Nifty July contract starts trading from 27th April 2023.
- The April, May, and June contracts will continue to have a lot size of 25 qty.
- All weekly expiry contracts from August will have the revised lot size of 15 qty.
- After the June 2023 expiry, the Bank Nifty long-term options contracts (where the expiry is greater than 3 months) will be revised from the current lot size of 25 Qty to 15 Qty. The average closing price of Bank Nifty (cash) will be taken to adjust the contract value.
Impact-
Benefits-
- Liquidity Increase: Bank nifty is a very liquid contract still Bank Nifty futures spread is ~ Rs. 5 (Price difference between best buyer and Best Seller). It means if you buy and sell Bank nifty immediately then your loss will be Rs. 125 ( Rs. 5 X 25 qty). By reducing the lot size liquidity will further increase and narrow down the spread, which will eventually benefit the trader.
- Investors can hedge their portfolio with lesser margin: Reducing the contract value will result in lower margin requirements, which can benefit small retail traders with portfolios of 6 lakhs or less by allowing them to hedge against market uncertainty and volatility.
- Traders can manage their risk better: The biggest challenge for traders is having enough margin money. As every trader operates with limited capital, a losing trade requires additional cash to adjust or hedge positions in order to turn a profit. Trading with smaller quantities can help reduce the trader’s risk and provide a buffer of extra cash for making necessary trade adjustments.
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Reducing expenses is crucial for success, and we’ve got you covered. Worried about increased brokerage charges due to trading more lots? Don’t be, as we charge a flat fee of Rs.15/order regardless of the number of lots in your order. Your trading expenses will stay the same!
Why this change was made!
As per the Exchange Circular (NSE/FAOP/44482), the value of the contracts in the Futures & Options segment may not be less than Rs. 5 lakhs at the time of introduction. The permitted lot size for futures & options contracts shall be the same for a given underlying or such lot size as may be stipulated by the Exchange from time to time. SEBI in its circular CIR/MRD/DP/14/2015 dated July 13, 2015 has prescribed the revised methodology for revising the lot size for derivative contracts as the lot size for derivative contracts in the equity derivatives segment shall be fixed in such a manner that the contract value of the derivative on the day of review is between Rs. 5 lakhs and Rs. 10 lakhs.
Conclusion
The Bank Nifty lot size is being reduced to increase liquidity, but don’t let reduced margins lure you into trading more. Stick to your winning strategy and gradually adjust to the new changes from July onwards. Remember, regulatory changes affect the markets as a whole, so be cautious and see how the market reacts before making any sudden changes.
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