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Future realized volatility + Volatility trading
Future realized volatility + Volatility trading

Chapter 3

Lot size of Derivative Contracts in Indian Stock Markets

Nifty Lot Size

Nifty is the flagship index of the National Stock Exchange of India (NSE), comprising the top 50 actively traded stocks across various sectors. Nifty Lot Size refers to the minimum number of shares or units that can be traded in a single transaction of Nifty index futures or options contracts. Lot size for Nifty is determined by the exchange and is subject to periodic review. In the realm of Indian stock market trading, particularly in derivatives, the concept of lot size holds significant importance.

The Nifty lot size for futures and options contracts may vary over time based on factors such as market liquidity, trading volumes, and regulatory considerations. The understanding of Nifty lot size helps in proper position sizing and risk management strategies.

Quantsapp helps in understanding the sensitivity of Nifty futures or options to the lot size; being aware of the P&L impact due to movement in the price of the underlying. It gives that ease of functionality.

BankNifty Lot Size

BankNifty is a benchmark index that reflects the performance of the banking sector in India. Comprising the most liquid and large-cap banking stocks listed on the National Stock Exchange (NSE), BankNifty serves as a vital indicator for investors to gauge the overall health and performance of the banking industry.

The lot size in BankNifty determines the number of contracts or shares that can be traded in a single transaction. This lot size is predefined by the exchange and is subject to periodic revisions.

The lot size for BankNifty futures and options contracts is determined by the National Stock Exchange of India (NSE). Typically, the lot size for BankNifty futures and options is calculated based on the prevailing market conditions, volatility, and regulatory guidelines.

 

The above screenshot of BankNifty 48600 CE of April 10, 2024 expiry has been depicted with lot size indicated as 15. Option traders in Indian stock markets can benefit from the vivid representation which highlights the sensitivity of option payoffs to lot size.

Importance of Lot Size

1. Risk Management: Lot size plays a crucial role in risk management for traders. By trading in multiples of the lot size, traders can effectively manage their exposure to market fluctuations and mitigate potential losses.

2. Liquidity: Lot size also impacts liquidity in the derivatives market. Higher lot sizes can attract more institutional participation, leading to a different liquidity pattern and can influence price discovery mechanism.

3. Capital Requirement: Lot size directly influences the capital required to initiate a trade. Traders need to consider the lot size alongside their risk appetite and available capital before entering BankNifty/ Nifty etc. derivative positions.

FinNifty is a variant of the Nifty index that comprises only financial sector stocks listed on the NSE. Similar to Nifty, FinNifty Lot Size refers to the minimum number of shares or units that can 

be traded in a single transaction of FinNifty index futures or options contracts. The FinNifty lot size is also determined by the exchange and is subject to periodic review.

 

As with Nifty, FinNifty lot size for  futures and options contracts may vary over time based on market dynamics and regulatory considerations specific to the financial sector.

All Nifty Lot Size, BankNifty Lot size and FinNifty Lot Size play pivotal roles in the trading of index derivatives, offering investors and traders opportunities to participate in the broader market or specific sectors. Being aware of and understanding these lot sizes is essential for informed decision-making.

Lot Size Change in Indian Stock Market Indices, (NIFTY, FINNIFTY)

Is it the creeping competition?

The National Stock Exchange (NSE) announced on Tuesday, April 2, 2024, the adjustment of the lot sizes for derivatives contracts linked to the NIFTY, NIFTY Financial Services (FINNIFTY), and NIFTY Midcap Select (MIDCP NIFTY) indices, effective from April 26, 2024.

The Nifty Lot Size has been halved from 50 to 25, while for FINNIFTY, it has been reduced from 40 to 25, and for MIDCP NIFTY, it has been decreased from 75 to 50. However, BankNifty Lot Size will remain unchanged at 15.

The revised Nifty lot sizes for weekly, monthly, quarterly, and half-yearly expiries will take effect from April 26. The exchange clarified that there would be no modification to the lot size for the monthly expiry of April 2024 contracts. The adjusted lot size for the first weekly expiry of Nifty will be applicable to contracts expiring on May 2, and the first monthly contract with the new lot size will expire on May 30, 2024.

For FINNIFTY and MIDCP NIFTY, lot size will remain unchanged for existing monthly and weekly expirations for April, May, and June 2024 contracts. However, the monthly contracts in the July series of both indices will have a revised lot size.

Existing weekly contracts of FINNIFTY expiring up to July 23, 2024, will maintain the old lot size, with the revised lot size coming into effect from August 6, 2024 expiry. All Weekly Contracts with maturities from August 2024 onwards (i.e. weekly contract with expiry date of August 6, 2024 onwards) will have revised market lots.

Similarly, weekly contracts of MIDCP NIFTY expiring on or before July 22, 2024, will retain the old lot size, and the revised lot size will be applicable from August 5, 2024 expiry. All Weekly Contracts with maturities from August 2024 onwards (i.e. weekly contract with expiry date of August 5, 2024 onwards) will have revised market lots.

NSE's decision to decrease the lot size is anticipated to enhance turnover on its platform and encourage greater involvement from retail investors, as the margin necessary for trading derivative contracts will also decrease.


With the lot size reduced from 50 to 25, the value of a NIFTY50 contract decreases from about  ₹11.2 lakh to ₹5.6 lakh, rendering Nifty contracts notably more affordable than SENSEX options contracts.

Moreover, the margin requirement will drop from the current about ₹1.28 lakh per lot to ₹64,000 per lot. This reduction is expected to augment liquidity in derivative markets, allowing traders with less capital to participate as entry barriers are halved.

This adjustment in lot size occurs amidst stiff competition from the rival Bombay Stock Exchange (BSE), which has gradually augmented its turnover and secured a larger market share in the derivative segment over the past year. So it’s a fight against an upcoming competitive threat for NSE.

What is lot size?

Lot Size refers to the minimum number of shares or units that can be traded in a single transaction of an underlying index or stock futures or options contracts.

Nifty Lot Size refers to the minimum number of shares or units that can be traded in a single transaction of Nifty index futures or options contracts. 

Who decides the lot size?

Lot size for Nifty, BankNifty, FINNIFTY, MIDCP NIFTY or stock derivatives (futures and options) is determined by the exchange and is subject to periodic review. Nifty is the flagship index of the National Stock Exchange of India (NSE), comprising the top 50 actively traded stocks across various sectors.

What is 1 lot in Nifty 50?

Nifty Lot Size is at present 50. The Nifty Lot Size has been halved from 50 to 25 effective date being, April 26, 2024. Lot size for Nifty is determined by the exchange and is subject to periodic review. In the realm of Indian stock market trading, particularly in derivatives, the concept of lot size holds significant importance.

What is the importance of Lot Size?

Lot size in the Indian derivatives market plays a crucial role in maintaining liquidity and efficient price discovery. It is to standardize trading quantities for an underlying, enabling effective risk management and accessibility for investors. Hence it is designed to encourage liquidity and participation, because if the lot size is too large, many traders may refrain from participating, while if Lot Size is too small, then it causes excessive exuberance and volatility in that underlying, be it, Nifty, BankNifty indices or stocks which are in F&O segment of NSE.

What is 1 lot in BankNifty?

BankNifty Lot size of futures and options contracts is determined by the National Stock Exchange of India (NSE). Typically, the BankNifty lot size for futures and options is calculated based on the prevailing market conditions, volatility and regulatory guidelines. At present it is 15.