On Wednesday, September 25, five stocks have been added to the Futures and Options (F&O) ban list by the National Stock Exchange (NSE). The stocks on the list are Aditya Birla Fashion and Retail, Granules India, Hindustan Copper, Vodafone Idea, and Indian Energy Exchange (IEX). This ban is placed because the derivative contracts of these stocks have crossed 95% of the market-wide position limit (MWPL).
The NSE imposes the F&O ban to prevent excessive trading in certain stocks when the number of open positions in their futures and options contracts becomes too high. This helps in controlling the risks of excessive price fluctuations and volatility in the market.
When a stock is placed in the F&O ban, traders who already have open positions in these contracts can still close them, but new positions are not allowed. This limits excessive speculation and helps reduce the risk of major price swings.
For traders, this means fewer opportunities to trade in these stocks through futures or options during the ban period. However, if they have positions that need to be closed, they can still exit from their trades.
Since these stocks can still be traded in the cash market, people can continue buying or selling them directly without using the F&O route. This helps keep the stock available for normal trading activities while controlling the risks that come from the F&O market.
The F&O ban is usually a short-term measure. The ban is lifted once the open positions in the futures and options contracts of the banned stocks fall below the 95% threshold. Once the position limit is under control, the stocks are taken off the F&O ban list, and normal trading in the F&O segment resumes.
The NSE updates the F&O ban list daily, so traders need to keep an eye on these updates if they are involved in trading futures and options contracts. It is also important to note that a stock being on the F&O ban list does not necessarily mean its price will drop; it just means trading in its futures and options is limited.
For traders, understanding the F&O ban and its impact is crucial for making informed decisions and managing risks effectively. Keeping up with the daily updates from NSE ensures that they are aware of which stocks are restricted from trading in the F&O segment and can plan their strategies accordingly.
