Bank Nifty Lot Size Getting ‘Reduced’ by 40%: Good or Bad?

  • Stock Market Analysis

The Nifty Bank index which is a sectoral index focused to measure the banking space is one of the most-traded indices on the NSE. This index is also a darling of options sellers who love to write options on this index, especially the weekly ones.

Most of you would be knowing that there is a periodic revision of lot sizes for securities that are in the derivatives market, done by exchanges to maintain their contract value. So basically, if a security falls too much during a stipulated period, then its lot size is revised on the upside to bring back the contract value. Similarly, a security that goes significantly up in a short interval, its lot size gets reduced in the immediate lot revision schedule to bring down the contract value (Contract value = lot size x price).

In the latest lot size revision, NSE has decided to trim down the lot size of Nifty Bank by 40%, from the existing 25 shares to only 15. How does it affect your trading and more importantly, is it good or bad?

In my opinion, it does not have any drawbacks, only positives to it. Firstly, reducing the lot size will reduce the entire contract value which simply means lesser margins. Currently, 1 contract of Bank Nifty near-month futures is requiring a margin of INR 1,40,000. This is higher compared to Nifty 50 margin requirement of INR 1,02,000 because there is a good difference between the contract value of both. As of Friday’s closing, Nift 50’s contract value stands at INR 8,67,987, compared to Bank Nifty’s INR 10,15,216.

Obviously, the margin keeps on varying and depends on several other factors such as volatility, but the total contract value is the biggest determinant of how much margin you have to pay. So, after the lot size revision, the Nifty Bank’s margin would noticeably reduce.

Secondly, lower margins would further enhance liquidity. As more traders would be able to trade this index, we could probably see a gradual trend of increasing volume which is good for everyone as it reduces the impact cost (difference between the bid and ask). If you leave the current weekly and monthly contracts, the subsequent contracts have less liquidity.

Thirdly, lower contract value also inherently lowers the risk, without traders having to do anything. If earlier you were able to take a loss of 200 points (INR 5,000) now with the same 200-point move against you, your loss will be minimized to INR 3,000. Some traders might complain that it also reduces the profit size which is true, but then, multiple contracts can be traded.

To sum it up, reduced margins, lower risk and higher liquidity would all contribute to a better trading experience. With reduced lot size, the quantity freeze limit is also expected to go up.

Now the main question, from when these changes are taking place:

  1. All monthly contracts from July 2023 expiry will have the revised lot size. The current April, May and June 2023 monthly contracts will have the existing lot size of 25.

  2. All weekly contracts from August 2023 weekly expiry & beyond will have the revised lot size.

  3. The lot size of all existing long-term options contracts (having expiry greater than 3 months) will be revised after the expiry of the June 2023 monthly contract.

Read More: Nifty 50 Breaks Range; Finally ‘Confirms’ Up Trend!

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  • deepak lohumi @deepak lohumi
    I think future price of bank nifty will reduce also. good for future trader. bad for option trader
    Like 0
  • Ravindra Kumar @Ravindra Kumar
    To reduce 40% is very bad decision...👎
    Like 3
  • Kiran Market @Kiran Market
    All Retails/small Trader should be stop trading at least one or two week, before new rules applicable.
    Like 4
  • Amingo husk @Amingo husk
    nothing but trying to fool small traders to collect more charges by the money hungry SEBI..1st they increase tax charges now reduce lots.. do they think we cant see throught?fking BJP sala.. only working for the rich
    Like 15
  • Kirandeep Choudhry @Kirandeep Choudhry
    Is se Acha Sub Broker Ban jao
    Like 0
  • Kirandeep Choudhry @Kirandeep Choudhry
    Ayush Sir What Benifit. We Should Get Unite and Let Government Trade Big Players as we incur loss they get profit. Then Let's See How they get Profit. Worst Sebi and Government ever seen. That Lady is a Fool Big Fool Cauliflower
    Like 2
  • Vijayakumar Venkata @Vijayakumar Venkata
    This will benefit for brokers. more number of lots means more brokerage
    Like 5
  • Hari Nair @Hari Nair
    If you want to increase liquidity, the best way is to reintroduce margins. These are just gimmicks.
    Like 1
  • Sachin Dsousa @Sachin Dsousa
    Lots sizes brought to 15 per lot in Banknifty is better, I have been a trader for long time and have even seen the lot size of 40 per lot in bank nifty in the past.
    Like 1
  • Karthikeyan Janakiraman @Karthikeyan Janakiraman
    reducing lot will definitely increase the profit for the brokers everybody will increase the lot qty example 2lot traders will take 4 lots, brokers gains more by brokerage charges
    Like 0
  • shnt das @shnt das
    You writers always show the HONEY never the dangers!! As if we readers do not realise that
    Like 1
  • Shubhajyoti Baul @Shubhajyoti Baul
    Good
    Like 0
  • Bullshit... Quality of services of Brokers who charge per trade is dangerously bad. There IT infrastructure is pathetic. Ultimately, this decision will be bad for high volume options traders. Looks like author hasn't traded beyond one lot in his life
    Like 8
  • radha krishnan @radha krishnan
    You have not considered the brokerage cost, now per lot is ₹ 50–100 and traders will increase the number of lots , hence higher brokerage costs
    Like 4
    • Aayush Khanna @Aayush Khanna
      Hi, maybe you should look for discount brokers. They don't charge per lot, but per order.
      Like 5
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  • OP CHOUDHARY @OP CHOUDHARY
    good
    Like 0
  • Rakesh Agarwal @Rakesh Agarwal
    good information
    Like 0
  • Amit Das @Amit Das
    There are some brokers also they charge per trade
    Like 2
  • Abhinav Sharma @Abhinav Sharma
    Good
    Like 0
  • shibu pillai @shibu pillai
    It’s totally bad decision,Brokerage firms will be in beneficial & Traders will be in loss.if the lots size must be 30 .Banknifty 30 ,Fin nity 40 & Nifty 50 .its my point of view .Totally bad decision
    Like 3
    • Moin Shaikh @Moin Shaikh
      may be we can take 2 lots then, it might not make a significant difference in taxes and charges I believe. correct me if I am wrong
      Like 0
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  • Ashish Ashish @Ashish Ashish
    Brokerage is charged per lot, so it will be negative in that sense since to trade same value you need to have 40% more lots.
    Like 6
    • Aayush Khanna @Aayush Khanna
      Discount brokers charge per order, irrespective of lots.
      Like 2
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  • Adnan Khan @Adnan Khan
    bad
    Like 1
  • tushar Bhangale @tushar Bhangale
    good
    Like 4

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