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Know All About the Securities Ban in F&o & Its Effects

What is Securities Ban in F&o

A1 Intraday Tips Technical Analysis team has given lot of information below about the Securities Ban in F&o in this Article, that will surely help day traders to increase their knowledge on Stock market.
A stock comes under F&o Ban period when the open interest of that particular stock crosses 95% of MWPL(Market wide position limit) I.e. when a combined open interest in futures and options in all the available contracts taken together crosses the prescribed limit.

MWPL (Market wide position limit) : Market Wide Position Limit (MWPL) is widely used parameters in analysis of stocks that trade in the derivative segment. it is a position limit of the maximum number of open positions allowed across all F&O contracts of the underlying stock.

A user isn't allowed to open any new positions in securities under ban period but can exit already opened positions.

Once a stock is under ban, a trader is not allowed to open any new positions in securities, while trader can trade in that particular contract only to offset/ exit his existing position. You can simply say that trader cannot take a trade that increases open interest of that particular stock.

The NSE also provides a facility on its trading system that displays an alert once the open interest of futures, and contracts in security exceeds 60 percent of the market-wide position limit specified for the security. These alerts are displayed in intervals of 10 minutes.



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Stock Banned in F&o

What is F&o Ban, Why F&o Ban, Effects of F&o Ban

When Banned Securities Resume Trading in F&o Segment ?

The F&o trading in the stock can resume only after the aggregate open interest of the stock across the exchanges comes down to 80%. We can also say that when open interest falls to 80%, security comes out of the ban and the normal trading is resume in nse


Violation of F&o & Penalty

If any trader violates the F&O ban i.e. if that traders increases or creates a new position in the stock which is under F&o Banned, the trader will have to pay a penalty of 1 percent of the value of the increased position. This is subject to a minimum limit of Rs 5,000 and a maximum of Rs 1 lakh.


Effect of F&o Banned on Securities

Stocks in F&O ban can cause huge losses to traders if they are caught unawares since they will have to square off their transactions at a price that could be unfavorable to them.

Generally if some events happened related to the stock which is in under banned price reaction can become very violent.

F&o Ban brings in high volatility at all the times

  • When the security is put under ban
  • When the Security is about to be put under ban
  • When the Security comes out of the ban period.

There is no guarantee that price for sure will rise or fall before, during, or after the ban. Instead, as a trader you could be taking a big risk as Illiquidity happens due to F&o ban. Remember that ban means no new F&O positions are allowed - Only existing ones are allowed to be squared-off. That means lower number of market participants, much reduced market activity, no fair price discovery, and hence wide swings in prices (in either direction) for F&O contracts.

Stock price Generally fire's up usually after the stock comes out of the ban period but may fall down too.


Securities Ban in F&o

View List of Securities Banned in F&o Segment

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