F&O Ban Period – Know the reasons for computing F&O Ban

Hindi: आप इस लेख को हिंदी में भी पढ़ सकते है|

If someone wants to trade in Futures and Options (F&O), they should know certain terms, F&O ban is one of them.

Now the question arises that what is Futures and Options ban?

The reasons for computing the F&O ban?

And how to compute F&O ban?

What is Futures and Options Ban?

The stock exchange sometimes imposes a ban on a particular security.

During this period one cannot create any fresh position in the Futures and Options market of that particular stock.

They can only offload or unwind their positions.

If someone tries to violate the ban and create further positions a penalty will be imposed on them.

Futures and Options ban is only applied to stocks and not on any indexes.

The reasons for computing F&O Ban:

The exchange will impose a ban on particular security to eliminate excessive speculation.
As we know during that period no fresh position can be created.

The stock exchange will impose a ban on particular security when the aggregate open interest of that stock crosses 95% of the market-wide position limit.

Now the question arises, what is MWPL and how it can be computed?

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How to compute F&O Ban?

A market-wide position limit is the lower of the following criteria:-

• 30 times of the average shares those are traded daily during the preceding month in the cash segment of the exchange.
• 20% of the number of shares held by nonpromoters i: e free float of a particular stock.

So, you got your market-wide position limit, one should compare that market-wide position limit number with the aggregate number of open interest in a particular stock.

If the aggregate number of open interest is above or equal to 95% of market wide position limit then that stock will enter into ban period.

The stock will stayed at ban period until the aggregate open interest of that stock will reduced to 80% or below that of market wide position limit.

The normal trading will resume only after that.

You can also use option trading scans to filter out stocks for trading the next day by using StockEdge app

Key Takeaways:

• The stock exchange sometimes imposes a ban on a particular security.
• F&O ban is only applied to stocks and not on any indexes
• The stock exchange will impose a ban on particular security when the aggregate open interest of that stock crosses 95% of the market-wide position limit.

Happy Learning!