Why do F&O stocks enter a ban period? What does it mean?
Trading in the F&O segment requires understanding a few terms:
Open Interest (OI)- The total number of outstanding (open) derivative contracts held by investors, that have not been settled for a particular asset.
Market Wide Position Limit (MWPL)- The maximum number of open F&O contracts permitted for a particular underlying stock. This limit is set by the exchange. Hence, it is the maximum permitted OI for a particular underlying stock
F&O Ban:
- If the combined OI of a stock F&O contract crosses 95% of its MWPL, all F&O contracts of that stock are put under a ban period by the exchange.
- When stock F&O contracts are under a ban period, no fresh positions are allowed for any F&O contracts of that stock. Only exiting of existing positions is allowed.
- When OI falls below 80%, the ban is reversed.
* The ban is applicable only to stock F&O contracts, and not to index contracts such as NIFTY, BANKNIFTY * There are no restrictions on trading in the concerned stock in the cash segment
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