Trading in futures binds the parties to carry out the transaction on the agreed-upon terms and conditions. Everything in this contract is standardized, including the price and lot size. No company registered on the exchange can change the lot size while offering futures and options in the share market.
What is the Lot Size in Futures trading?
Lot size in futures refers to the number of underlying assets within a single contract unit. Assume you want to invest in a Wipro Ltd. future contract with a single lot size of 800. It means that there will be 800 shares of Wipro Ltd. in one lot. If Wipro Ltd.’s current price is Rs 400, one futures contract will cost you Rs 3,20,000 (800 × 400) plus the carrying cost.
The Securities Exchange Board of India (SEBI) determines the lot size, which varies with underlying assets.
How are Lot Sizes fixed in Futures contracts?
Previously, SEBI set the indicative lot size in trading at Rs 2,00,000. This is usually the nominal value of the underlying stock or interest. One has to pay the margin amount on the fraction of this value.
Until 2015, multiplying the number of shares in a single lot of any company yielded a notional value of more than Rs 200,000. However, in 2015, the regulator reassessed the market and discovered that retail participants in futures and options trading do not understand the risk involved in derivatives. Thus, to tighten trade policy and protect the interests of retail investors, the indicative lot size was raised to Rs 5,00,000. In addition, the F&O list saw several new additions with a minimum lot size value of Rs 7,50,000. There is also a proposal to increase the lot size to Rs 10,00,000.
The lot size is subject to semi-annual review and is determined by the average of the previous month’s closing price of the underlying assets. If the revised size exceeds the existing one, it will only apply to new futures contracts.
Why is the Lot Size modified in the Futures contract?
The lot size is linked to the indicative value, which changes as the underlying assets’ prices change. For example, suppose the lot size for XYZ company’s futures is 1000 shares, and the market price is Rs 200. The lot value, in this case, will be Rs 2,00,000. If the price of XYZ shares rises to Rs 550 in a few months, the lot value will automatically increase to Rs 5,50,000.
Here, the regulator may wish to intervene and reduce the lot size to 400 shares, ensuring that the lot value remains close to the previously fixed indicative value.
If a significant price correction occurs in any company’s stock, the SEBI will increase the lot size.
Recent revisions by SEBI
SEBI’s most recent revision became effective on October 28, 2022.
|Lot Size Modification||Number of Futures Stocks|
|Lot size pushed downwards||10 stocks|
|Lot size pushed upwards||22 stocks|
|Lot size unchanged||157 stocks|
|Revised downwards but no modification in the multiple previous lot size multiple||5 stocks|
Futures Lot Sizes in the Indian Context
1. Regulatory Framework
In India, the Securities and Exchange Board of India (SEBI) regulates the futures and options market. SEBI prescribes lot sizes for various stocks and indices to maintain market stability and protect the interests of investors.
2. Diverse Lot Sizes
Lot sizes in India can vary significantly among different stocks and indices. For example, Nifty futures have a lot size of 75 units, while Bank Nifty futures have a lot size of 25 units. Understanding these variations is crucial for traders and investors.
3. Changing Lot Sizes
Lot sizes are not set in stone. They can change over time based on market dynamics. SEBI periodically reviews and adjusts lot sizes to align them with the current market conditions.
How Are Lot Sizes Determined?
1. Indicative Lot Values
SEBI uses indicative lot values as a basis for determining lot sizes. These values represent the notional worth of a single lot in terms of the asset’s current market price.
2. Market Price Movements
Lot sizes can change when the market price of the underlying asset experiences significant fluctuations. SEBI may adjust lot sizes to ensure they remain in line with the indicative lot values.
3. Ensuring Liquidity
Lot size adjustments also aim to maintain liquidity in the futures market. When an asset’s price rises substantially, reducing the lot size can make futures contracts more accessible to a broader range of traders.
The primary objective of introducing lot-size F&O trading is to maintain standardization. It enables the regulator to monitor trade practices and ensure that small investors do not suffer significant losses. The lot size for various future contracts varies; you can learn more about them by visiting the exchange where they are traded.
No, lot sizes differ for various assets. SEBI prescribes lot sizes based on the characteristics of each underlying asset.
You can easily find the lot size of a futures contract by referring to SEBI’s official list of lot sizes or by checking with your brokerage.
Lot sizes can change, but such adjustments are made by SEBI to ensure they remain aligned with market conditions.
Yes, in India, lot sizes for options contracts are the same as those for futures contracts of the same underlying asset.
Lots in futures refer to the minimum units of the underlying asset traded in a futures contract. For example, Nifty futures have a lot size of 75, allowing the trading of 75 Nifty index units per contract.
Lot size in F&O represents the minimum units of the underlying asset in a futures or options contract. For instance, Reliance Industries F&O has a lot size of 250, enabling the trade of 250 shares in a single contract.
“One lot” signifies a single unit of the lot size specified in a futures or options contract. For instance, one lot of Nifty futures equals 75 Nifty index units.
The minimum lot size in F&O is the smallest tradable unit for a specific asset set by the exchange. For example, Nifty options have a minimum lot size of 75, while HDFC Bank options have a minimum lot size of 550.
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.