One of the unique features of exchange-traded futures is that they are standardized. Most companies do this using minimum lot sizes. The lot size for futures is the lowest ticket size of the stock you can trade (futures).
When trading options and futures, you may only sell or buy these products in at least one lot or multiples of that lot size. For example, you have a lot of 75 units for Nifty, so you have to trade it in multiples of 75. Similarly, Reliable has a lot of 250 shares, so you have to trade these futures and options using multiples of 250.
The lot size for futures and options is the same. When you talk about futures/options lot size, the product and price are notional values for the futures contract. Let’s break things down into different parts to help you understand the concept.
The key to understanding futures and options (F&O) trading is to focus on the concept of lot size. This is one method used to standardize trading in this market. You should be aware of the difference between forwards and futures. The latter is standardized, but the former includes OTC (over-the-counter) products.
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One way to standardize futures is to use the lot size that the secondary market will provide them with. For example, someone wants to sell you an odd number of stock futures, but there are no buyers, which presents a problem. This is addressed by using standard lot sizes.
Any futures and options forex trading platform you will use standardized lot sizes. SEBI primarily defines lot sizes for all futures and options traded stocks and indices. Constantly updates the list.
You have to understand its history to understand the concept. SEBI initially set the lot size value for an index or stock at 200,000 rupees. You must remember that these are notional values and not the actual margins payable.
The margin on futures is a fraction of the notional value. Likewise, the lot size is fixed at the respective number of shares. Multiplied by the current market prices, this would give a notional value of over Rs.2 lakh. That was the case until 2015.
In 2015, SEBI decided to update the control speculation for retail investors of options and futures because most of them did not understand all the risks involved. SEBI then revised the indicative lot size to over Rs 5 lakh and included additional provisions in the F&O list to have notional values between Rs 7 and 10 lakh.
Today, lot size figures often vary, but the average is between 7 lakh and 10 million rupees. SEBI will initiate a review only to adjust lot sizes and bring them to normalized levels when the lot value deviates significantly from this range.
As you can see, an indicative range of values is maintained for lot sizes. Although tied to indicative lot values at one point in time, these notional values per lot will change if the stock moves sharply up or down.
For example, you have a share of 1000 shares at a price of Rs.600. This has a notional value of Rs.6 lakhs/lot. If the stock rises to 1500 rupees, the value of the lot will change to 15 lakh rupees, making it difficult for many traders to pay margin. This affects liquidity. Therefore, SEBI decides to reduce the lot size to around 50 to bring the lot value to an acceptable level of Rs 7.50 crore. It’s a constant process here.
The opposite logic also applies to stock price corrections. SEBI is revising the lot sizes above to be more compatible with the indicative lot values. These revisions are performed routinely.
Here it is important to understand that the indicative lot values have a fixed size of individual lots and must be continuously adjusted and reviewed based on the market movements of the index or stock. This is why many sizes vary and change over time.
For example, Bank Nifty has a unit price of 35,003 and a lot size of 25 shares, but Asian Paints has a price of Rs 3,018 with a lot size of 300 shares. The face value of both is almost the same, which is the basis for futures and options trading.
Lot sizes define minimum purchase quantities for futures and options contracts. Traders can buy them based on lot size or multiples thereof. Now that you know, it can be easier to do business with F&O.
How much is a lot in futures?
A lot represents how many contracts are contained in one security, so it changes periodically depending on the size of the futures or option lot.
How do I find out the lot size of the future?
You calculate the face value of your futures contract by multiplying the price per unit by the size of the contract.
What is the minimum futures lot size?
The lot size for equity derivatives is always fixed as a multiple of 25.