What is the F&O execution range and why do some open orders outside the F&O execution range get cancelled?

  • Orders shall be matched and trades shall take place only if the trade price is within the trade execution range based on the reference price of the contract.

  • Reference price for each contract shall be computed as follows:

For a new contract - At market open, Theoretical price derived from the underlying price (using implied volatility in case of options contracts and rate of interest which shall be revised daily with the applicable MIBOR rate) or base price of the contract in case the underlying price is not available at the time of computation.

  • The base price of the contracts on subsequent trading days - At market open, shall be the daily close price.

  • During Trading Hours – 1-minute simple average of trade prices, on a rolling basis, 1-minute simple average of trade prices, the reference price shall be revised throughout the day on a rolling basis at 1-minute intervals.

  • On days when the contracts were not traded in the last half an hour or not traded at all during the day, the base price for the next day shall be the theoretical price

  • So the execution range on both sides of the reference price would be:

Segment Reference Price % of Reference Price Minimum absolute Range (Rs.)
5 %
Rs 0.05 - 50
> Rs 50
40 %

To understand this better, assume -

The Nifty spot is currently at 18500. On expiry day, the Nifty 18300 CE was trading at 200, and you purchased it at that price. Let us set the circuit limits of this option to 0.05 (lower circuit limit) and 500 (upper circuit limit) (Upper circuit limit).

Any order placed between the circuit boundaries is valid, and the exchange will stamp it. The circuit limits for options are determined by their Delta value. This circuit limit is a price band that changes dynamically.

But there is a possibility of order cancellation in the scenario explained below:

For Nifty 18300 CE, if the reference price is 200, then the executable range is 120 to 280. Assume you have 2 lots (100 qty) and you have placed a stop loss for this at 100. This is a valid order and will be open.

Another buyer has also placed a Buy Limit order for 2 lots at 100 and this exactly matches with your 2 lots stop-loss order in the market depth. This is also a valid order and will be open as it is within the circuit limits of the contract.

If Nifty spot falls 90 points in 1 minute, nifty 18300 CE will fall to 110. When this happens, the reference point at the end of this minute will change. Say the reference point is now 180 and the execution range has changed to a new range of 108 to 252. Your stop loss of 100 is still outside the execution range but is still open. If Nifty spot falls another 20 points within the next trading minute. Nifty 18300 CE will further fall to 90.

Here, your stop loss of 100 has reached but it is still out of the execution range as the new reference point is yet to be formed only at the end of this minute. It is only after the new reference point is formed that your order will fall within the execution range.

Since your stop loss of 100 has now been reached and there is a matching Buy limit order at 100, and it is still outside the execution range as the new reference point is yet to be formed, this order will be cancelled in such a scenario.

When there is a significant move in an F&O contract, and if the execution range is not updated immediately by the exchange (as it is calculated based on the average of the trades in the contract), your order could get rejected.