In a significant move, SEBI (Securities and Exchange Board of India) has issued a new circular for Futures and Options (F&O) trading. These changes, effective from November 20, aim to make the market more transparent and equitable for traders. If you’re involved in F&O trading, it’s essential to understand how these new rules could impact your trading strategy.
Let’s break down the key points of SEBI’s circular in simple terms and explore how these changes might affect your trades.
Weekly Expiry Limited to Two Days a Week
Currently, F&O contracts expire five days a week, providing traders with frequent opportunities to adjust or exit their positions. However, under the new circular, weekly expiries will be reduced to just two days a week. This change will likely force traders to be more strategic with their trades, as they’ll have fewer opportunities to settle positions.
Contract Size Increases
SEBI is also increasing the minimum contract size for F&O trading. Where contract sizes previously ranged from ₹5 to ₹10 lakhs, they will now be between ₹15 to ₹20 lakhs. Here’s what this means for specific stocks:
An Example with Bank Nifty
Say ,
Current market price (CMP): ₹53,000
Lot size: 15
Current contract size: ₹7,95,000 (53,000 x 15)
Under the new rules, the contract size will be increased to ₹15-20 lakhs, which may result in the lot size rising to 25 or 30. However, this change should have no significant impact on retail traders as it mirrors past adjustments.
Another Example with Reliance
Say ,
Current market price (CMP):2,900
Lot size: 250
Current contract size: ₹7,25,000 (2,900 x 250)
With the new contract size, the lot could increase to 550. While this might increase the margin requirement, the potential earnings will also grow, offering traders an opportunity to maximize profits in future trades. History shows us that lot sizes have fluctuated before, particularly during the COVID-19 pandemic, and have since stabilized.
In both cases, the increase in lot sizes won’t drastically change trading conditions for future traders.
Impact on Premiums and Margins
With the revised contract sizes, here’s what traders can expect in terms of premiums:
- Future Buyer/Seller: ₹2-6 lakhs
- Option Seller: ₹1.5-3 lakhs
- Option Buyer: ₹40,000-1 lakh
These premium rates reflect the increased contract sizes, meaning margins for F&O trades will rise accordingly.
Key Points to Keep in Mind
- Upfront Margins: Traders will be required to pay upfront margins for F&O positions, which will ensure they maintain adequate funds to cover potential losses.
- Additional Margins for Option Sellers: If you’re selling options, you’ll need to keep extra margins aside, given the increased contract size.
- Calendar Spread Expiry Removed: The calendar spread expiry will no longer be available, requiring traders to adjust their strategies accordingly.
- Two Weekly Expiries: Beginning November 20, there will only be two expiry days per week for F&O contracts, requiring more careful planning and execution of trades.
The Long-Term Benefit for Traders
One of the more positive aspects of SEBI’s circular is the abolition of brokerage rebates for high-volume trades. Previously, brokerage firms could earn between 10% and 50% of their revenue from these rebates. SEBI has now eliminated these rebates, ensuring that the benefits flow back to traders in the form of a more transparent market.
While brokerage houses may feel the pinch from the loss of revenue, the overall effect of SEBI’s changes will create a more level playing field for retail traders in the long run. The slight increase in fees for F&O transactions will gradually be passed on to traders, but the transparency and fairness introduced by these changes should outweigh the additional costs.
Conclusion
SEBI’s new circular for F&O trading introduces significant changes, particularly in terms of contract sizes, margins, and weekly expiries. While these adjustments may require traders to tweak their strategies, the long-term goal is to create a more transparent and fair market for everyone involved.
By understanding and adapting to these changes, you can continue to trade F&O effectively and leverage the opportunities these new rules bring. Stay informed, stay strategic, and keep an eye on how the market evolves under this new regulatory framework.
Disclaimer: The information presented in this article is for informational purposes only and should not be considered financial advice. Investors are encouraged to perform their own analysis and seek professional guidance before making investment decisions.
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