If you trade in index derivatives, you’ll know how lot size plays an important role in determining your capital requirements and potential risks. In simple terms, lot size is the fixed number of contracts in a stock or index F&O trade. Any changes in these sizes will directly impact the market and investors.
The official announcement for the lot size revision was made in October 2024 and follows the new regulations from the Securities and Exchange Board of India (SEBI). With these modifications, the Indian stock market aims to maintain liquidity, manage volatility, and align with global markets.
In this post, let’s find out more about the evolving regulations and how they affect the trade.
The F&O lot size changes came into effect in November 2024, applicable to all new index derivative contracts that expire weekly, monthly, quarterly, and half-yearly. The key changes to keep in mind are:
| Exchange |
Index Derivative |
Previous F&O Lot Size |
Revised F&O Lot Size |
| NSE |
Nifty 50 |
25 |
75 |
| Nifty Bank |
15 |
30 |
| Nifty Financial Services |
25 |
65 |
| Nifty Midcap Select |
50 |
120 |
| Nifty Next 50 |
10 |
25 |
| BSE |
BSE Sensex |
10 |
20 |
| BSE Bankex |
15 |
30 |
| BSE Sensex 50 |
25 |
60 |
What is the impact on traders and investors?
Changes in the F&O lot size directly impact position sizing, risk exposure, and margin requirements for traders dealing in index derivatives. A higher lot size means you’ll need more capital to enter F&O positions on NSE and BSE.
For example, if you wanted to buy a Bank Nifty option at a premium of ₹100 per unit, the total cost earlier would have been ₹100 × 15 = ₹1,500 per lot. With the revised lot size at 30, the same trade will now cost you ₹3,000 per lot.
Similarly, if you’re selling options, you’ll need a higher margin requirement for trades. For perspective, one lot of Nifty Bank options could be previously sold at a margin of ₹1,20,000, while the increased lot size pushes the margin requirements to around ₹2,40,000.
Apart from the F&O lot size revision, SEBI removed the calendar spread and limited weekly expiries to one per exchange. These changes could significantly impact trading volumes, liquidity and short-term trading strategies in index derivatives.
How do we adapt to the new lot size rules?
With the recent changes in the Indian stock market, you need to be mindful and rethink your positions in index derivatives.
If you trade on margin, adjusting position sizes or shifting to lower-premium contracts can help manage risks to some extent.
Institutional investors may need to optimise hedging strategies to balance liquidity constraints in the Indian stock market.
Monitor market conditions closely and plan future trades effectively by considering potential risks before entering new positions.
Before entering the new trades, understand the market liquidity and contract sizes. Proactive risk management and smart investments can help you maintain a balanced portfolio.
What’s more to know?
SEBI’s decision to limit weekly expiries to one per exchange pushed NSE to discontinue weekly derivatives contracts for Nifty Bank (BANKNIFTY), Nifty Midcap Select (MIDCPNIFTY), and Nifty Financial Services (FINNIFTY) in November 2024. BSE also discontinued index derivatives contracts on SENSEX 50 and BANKEX around the same time.
These changes impact F&O traders, especially those who rely on weekly index derivative expiries. While some expect limited effects on liquidity, others believe volatility patterns may shift. In other news, NSE has also announced expiry day changes for stock and index derivatives effective April 4, 2025, following BSE’s update last year. By keeping up with these new regulations and adjustments, you can effectively navigate and adapt to the evolving Indian stock market.
Frequently Asked Questions (FAQs)
Do lot size changes impact open F&O positions?
Yes, F&O lot size revisions apply to open positions and new contracts on exchange platforms. Traders should check their open positions and expiries and make strategic trade adjustments to avoid losses and maximise profits.
What are the major index options for trading in India?
Sensex, Nifty 50, Nifty Bank, Nifty Midcap Select, Nifty Financial Services, Nifty IT, and Nifty Next 50 are among India’s major indices for equity derivatives trading. They offer exposure to various market segments for capitalisation.
What factors influence the revision of lot sizes in NSE and BSE?
Factors like market volatility, liquidity, regulatory guidelines, high competition, and the need to align with global standards influence the lot size revisions in the Indian stock market. NSE and BSE also consider price fluctuations and risk exposures to maintain fair participation and efficient trading experience.
The buildings of Bombay Stock Exchange (BSE) on the left and National Stock Exchange (NSE) on the right. Image Credits: Shutterstock (BSE) and Shailesh Andrade / Reuters (NSE)